The Total Contribution Cost Ratio

1457 Words Dec 3rd, 2015 6 Pages
A. Breakeven point (BEP) is where the total contribution cost equals to fixed cost. To calculate this, you do fixed cost divided by the contribution per unit. To calculate the contribution per unit you do the selling price minus the variable costs.
Racquets - £225
Producing - 6000 units
Labour - 27000 hours
Materials - £44 X 6000 = £264,000
Labour - £12 X (4.5 hours x 6000) = £324,000
Variable overheads production – 10 x 4.5 = 45 x 6000 = £270,000
Total Expenses - £858,000 + 161,000 + 126,000 = 1,145,000
BEP – £225 x 6000 = 1,350,000
£1,350,000 – £858,000 = 492,000 divides by 6000 = 82 contribution per unit
£161,000 + £126,000 = £287,000 Fixed costs
£287,000 divides by 82 = 3500 units to hit BEP

B. 3500 units X 225 selling price = £787,500

C. The margin of safety is calculated by doing Profit divided by the contribution per unit = Sale Units (No. Of) To find out the percentage you do sale units divided by the No of units sold X 100 = %
£1,350,000 - £1, 145000 = £205000 Profit
£205000 divides 6000 = 34.17 Profit per unit
£205000 divide 82 = 2500 units, margin of safety
2500 divide 6000 x 100 = 41.7% margin of safety

D. The Margin of safety is the difference between Sales and Break Even Point it indicates by how much sales may decrease before the business will suffer a loss. The margin of safety is defined by the I.C.M.A. terminology as the excess of normal or actual sales over sales at the breakeven point. It may be expressed as a percentage of either normal sales or…
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