Unit 1: Cost-Volume-Profit Analysis Economics Worksheet With Answers - Cma311s Notes, 2010 Page 8
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27Solution to Example 3
Compute the average contribution per unit. This can be done in one of the following two ways:
Method 1:
Sales price
– Variable cost
= Contribution
x Number
= Total
Product
per unit
per unit
per unit
of units
contribution
A
N$20
N$16
N$ 4
2 000
N$ 8 000
B
N$50
N$36
N$14
3 000
N$ 42 000
C
N$40
N$28
N$12
5 000
N$ 60 000
Totals
10 000
N$110 000
Average contribution per unit (N$110 000 ÷ 10 000 units)
N$11,00
Method 2:
Product Contribution per unit
x Sales mix¹
= Weighted contribution²
A
N$ 4
0,20 (2 000 ÷ 10 000)
N$ 0,80
B
N$14
0,30 (3 000 ÷ 10 000)
N$ 4,20
C
N$12
0,50 (5 000 ÷ 10 000)
N$ 6,00
Average contribution per unit
N$11,00
¹ The sales mix is the proportion of each product’s sales in units to total sales in units.
² Each product has a different contribution, and it is necessary to reduce the separate contributions to a
weighted average contribution of all products.
Note that the average contribution is not simply the sum of N$4, N$14 and N$12 divided by 3, because the
products are not sold in equal proportions. The contribution of product C, which constitutes 50% of unit
sales, must be weighted more heavily than the contributions of products A and B. The weighted average
contribution, therefore, represents the contribution of all separate products with a specific sales mix.
The break-even point can now be computed:
Fixed costs
Break-even point in units = Average contribution per unit
N$77 000
=
N$11
= 7 000 units
Activity 2
Chem-Sol Ltd produces and sells two chemicals called Solvex and Dysolve. The following data regarding
these two products is available:
Solvex
Dysolve
Selling price per unit
N$10
N$20
Variable cost per unit
N$ 7
N$12
Sales mix
60%
40%
Total fixed cost = N$29 700
Required:
2.1
Compute the company’s break-even point in units.
8
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