CVP Analysis

Guide to marks: 20 marks – 4 for a, 4 for b, 4 for c, 8 for d

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A manufacturer can make two products, A and B. The following data are available:B

Product A B Total
Sales price per unit $10 $20
Variable cost per unit $5 $12
Total fixed costs $4,000

(a) Calculate the unit contribution margin for each product.
(b) This month the manufacturer will specialise in making only Product B. How many does he need to sell to break even?
(c) If they specialise in making only A what is the breakeven sales volume for the month in sales dollars?
(d) He now decides to manufacture both A and B this month in the ratio of 2 A to 1 of B.
(i) How many of each product must be sold to earn a profit of $5,000 before tax for the month?
(ii) How many of each product must be sold to earn a profit of $21,000 after tax (of 30c in the dollar) for the month?

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