Question

1. The following data related to three products of a company with fixed costs of sh.60,000 per period.

Product	X	Y	Z
Selling price (sh)	8	12	30
Unit marginal cost	6.50	6.50	14
Sales units	20,000	5,000	1,000

1. Required;

1. Break-even point
2. Profit volume ratio

2. Using the data show how many units each product would require to earn a profit of sh50,000.

Answer 1

a)

i)

Break-even point in units = Fixed Cost / Contribution Margin Per Unit

Contribution margin per unit = Selling Price per unit - Unit marginal cost per unit or variable cost per unit

	X	Y	Z	Overall Company
Selling Price Per Unit	$8	$12	$30	$50
Less: Variable cost per unit or unit marginal cost	($6.50)	($6.50)	($14)	($27.00)
Contribution Margin per unit (a)	$2	$6	$16	$23
Fixed Cost (b)				$60,000
Break-even point in units (b/a)				2,609
Break-even point in dollars ($50 * 2,609 units)				$130,435

ii)

Profit volume ratio or Contribution margin ratio = Contribution Margin per unit / Selling price per unit * 100

	X	Y	Z	Overall Company
Selling Price Per Unit (b)	$8	$12	$30	$50
Less: Variable cost per unit or unit marginal cost	($6.50)	($6.50)	($14)	($27.00)
Contribution Margin per unit (a)	$2	$6	$16	$23
Contribution Margin Ratio (a/b*100)	19%	46%	53%	46%

b)

	X	Y	Z	Overall Company
Fixed Cost (a)	$60,000	$60,000	$60,000	$60,000
Desired Profit (b)	$50,000	$50,000	$50,000	$50,000
Contribution margin per unit (c )	$2	$6	$16	$23
Units should be sold to earn a profit of $50,000 (a + b/c)	55,000	18,333	6,875	4,783