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Unit contribution margin is replaced with contribution margin for a composite unit. A composite unit is composed of specific numbers of each product in proportion to the product sales mix. Sales mix is the ratio of the volumes of the various products.
Windows Selling Price $200 Variable Cost 125.00 Unit Contribution $ 75.00 Sales Volume 8,000 Total Contribution $ 600,000 Fixed Costs Income
Combined
$ 900,000 900,000 $ 0
Case Study
Multi products Company has a sales ratio of 2:3:5 for models X, Y and Z respectively. Total fixed cost for the year are Rs 200000.The sale price, variable cost and contribution margin associated with each product are as follows: M-X M-Y M-Z Sales Price 50 25 10 Variable Cost 30 15 8 Contribution 20 10 2 Find out composited BEP and the no. of individual product required at B.E.P is then determined.
80
Problem:The following particulars are extracted from the records of a company A B Selling Price (per unit) 100 120 Consumption of material p.u 2kg 3Kg Material Cost Rs. 10 Rs. 15 Direct Wages Rs. 15 Rs.10
Problem:Direct Expenses Machine hours used p.u Overhead expenses p.u: Fixed Rs. 5 Variable Rs. 15 Direct wages per hour is Rs.5 A 5 3 B 6 2 Rs. 10 Rs. 20
Problem
a) Comment on the profitability of each product (both use the same raw material) when: 1. Total Sales potential in units is limited 2. Total Sales Potential in value is limited 3. Raw material is in short supply and 4. Production capacity in terms of machine hours) is the limiting factor. b) Assuming raw material as the key factor, availability of which is 10000 kg and maximum sales potential of each product being 3,500 units, find out the product mix which will yield the maximum profit
Solution
45 Contribution 55 P/V Ratio 55% Contribn per kg of material 27.5 Contribn per machine hour 18.3
Comments
1.
2. 3.
4.
B is more profitable as its making a larger contribution per unit as compared to A B is more profitable as its P/V ratio is more A is more profitable as its contribution per kg of material is more B is more profitable as it makes larger contribution per machine hour
Solution
b) When Raw material is key factor. A is more profitable to produce as its contribution per kg of material is higher than B. For 3500 units of A-material consumed will be 3500 x 2 kg=7000 Kg. The balance 3000 kg can be used to produce 1000 units(3000kg/3) of B. Thus the product mix is 3500 units of A and 1000 units of B