MPV plc manufactures and sells three products with the following selling prices

ID: 2476219 • Letter: M

Question

MPV plc manufactures and sells three products with the following selling prices and variable costs:

Basic Superior Supreme

Unit selling price $3.00 $3.75 $5.00

Unit variable cost $2.10 $1.50 $3.25

Current sales (units) 500,000 230,000 190,000

Existing fixed costs amount to $1,000,000.

(a) Calculate the total number of units MPV plc will require to sell in order to break even if the current sales mix persists.

(b) Prepare a Profit Statement showing the relevant figures for the three products to prove your answer to (a).

(a) Sales (units) Basic 500,000 0.5435 or 54.35%

Superior 230,000 0.25 or 25%

Supreme 190,000 0.2065 or 20.65%

920,000 1.0 100%

Contribution per unit – Basic = $0.90

– Superior = $2.25

– Supreme = $1.75

Weighted Average Contribution p.u. = ($0.90x0.5435)+($2.25 x

0.25) + ($1.75 ´ 0.2065)

= 48.915p + 56.25p + 36.138p

= 141.303p

B/E point (units) =

= 707,714

(b) Total Sales (units) = 707,714

Basic = 707,714 ´ 0.5435 = 384,643

Superior = 707,714 ´ 0.25 = 176,928

Supreme = 707,714 ´ 0.2065 = 146,143

MPV – Profit Statement

Basic Superior Supreme Total

$ $ $ $

Sales 1,153,929 663,480 730,715 2,548,124

Variable Costs 807,750 265,392 474,965 1,548,107

Contribution 346,179 398,088 255,750 1,000,017

Fixed Costs 1,000,000

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