Clear Picture Ltd produce two models of television sets, Brilliant and Super Bri
ID: 2476210 • Letter: C
Question
Clear Picture Ltd produce two models of television sets, Brilliant and Super Bright to which the following details relate for the current year.
Brilliant Super Bright
Selling price per set $250 $350
Variable cost per set $125 $190
Current sales (units) 5,000 2,500
Fixed costs $600,000
(a) Calculate the profit which Clear Picture would earn from the above situation.
(b) Calculate the total number of sets which require to be sold to break even if the above sales mix applies.
(c) Prepare a detailed Profit Statement to show the full figures for each product at break-even point.
(d) What would the break-even point be if the sales mix changed to three Brilliant sets for every Super Bright set?
(e) Explain why the increase/decrease in break-even point was predictable.
Explanation / Answer
(a) Brilliant Super Bright
Contribution p.u. $125 $160
Total Contribution 5,000 ´ $125 2,500 ´ $160
= $625,000 = $400,000
Total Contribution for company $1,025,000
less: Fixed Costs 600,000
Profit 425,000
(b) Sales (units) – Brilliant 5,000 67%
– Super Bright 2,500 33%
7,500 100%
Weighted Average Contribution p.u.= ($125 ´ 67%)+($160 ´ 33%)
= $83.75 + $52.80
= $136.55
B/E Point (units) =
= 4,394 (nearest unit)
(c) Brilliant Super Bright
Sales (units) 4394 ´ 67% 4394 ´ 33%
2944 1450
Profit Statement for Year Brilliant Super Bright
$ $
Sales 736,000 507,500
Variable Costs 368,000 275,500
Contribution 368,000 232,000
Total Contribution $600,000
less: Fixed Costs $600,000
(d) Weighted Average Contribution p.u. = ($125 ´ 75%)+($160 ´ 25%)
= $93.75 + $40
= $133.75
B/E point (units) =
= 4,486
(e) Since they were selling more of the product with the lower contribution per unit, it was inevitable that the break-even point would increase.
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