Chapter 21, Problem 8BTN

To determine

1)

Introduction:

Contribution Margin:

• Contribution Margin refers to the excess of Sales revenues over variable and fixed costs. Since it contributes to the overall profitability of the business it is referred to as contribution margin.

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

$\text{Contribution per unit = Sales price per unit -}\text{}\text{}\text{ Variable Costs per unit}$

Breakeven Point:

• Breakeven point is the monetary value of sales or number of units of sales where the contribution equals the fixed costs and the profit / loss is zero.

• Breakeven point is considered as the minimum sales needed to sustain a business without incurring losses.

$\begin{array}{l}\text{Breakeven point (Units) = Fixed Cost / Contribution Per Unit}\\ \\ \text{Breakeven point (Value) = Sales Price per unit x Breakeven Point (units)}\end{array}$

To Prepare:

One year multi product breakeven analysis

To determine

2)

Introduction:

Contribution Margin:

• Contribution Margin refers to the excess of Sales revenues over variable and fixed costs. Since it contributes to the overall profitability of the business it is referred to as contribution margin.

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

$\text{Contribution per unit = Sales price per unit -}\text{}\text{}\text{ Variable Costs per unit}$

Breakeven Point:

• Breakeven point is the monetary value of sales or number of units of sales where the contribution equals the fixed costs and the profit / loss is zero.

• Breakeven point is considered as the minimum sales needed to sustain a business without incurring losses.

$\begin{array}{l}\text{Breakeven point (Units) = Fixed Cost / Contribution Per Unit}\\ \\ \text{Breakeven point (Value) = Sales Price per unit x Breakeven Point (units)}\end{array}$

To Determine:

Results of One year multi product breakeven analysis