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RQ.22.17 O1 O2 Sales Variable Cost Contribution

The document contains calculations for two product mixes (Mix 1 and Mix 2) including sales, variable costs, contributions and profitability ratios. For Mix 1, the sales, variable costs and contributions are calculated for products X, Y and Z. The profitability ratio is 60% for X, 50% for Y and 40% for Z. The total costs and net income are calculated and Mix 1 results in higher net income. For Mix 2, the same calculations are shown for products X, Y and Z. Mix 2 has the same profitability ratios as Mix 1. However, the net income is higher for Mix 1, so Mix 1 is selected over Mix 2.

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Diana D'souza
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56 views6 pages

RQ.22.17 O1 O2 Sales Variable Cost Contribution

The document contains calculations for two product mixes (Mix 1 and Mix 2) including sales, variable costs, contributions and profitability ratios. For Mix 1, the sales, variable costs and contributions are calculated for products X, Y and Z. The profitability ratio is 60% for X, 50% for Y and 40% for Z. The total costs and net income are calculated and Mix 1 results in higher net income. For Mix 2, the same calculations are shown for products X, Y and Z. Mix 2 has the same profitability ratios as Mix 1. However, the net income is higher for Mix 1, so Mix 1 is selected over Mix 2.

Uploaded by

Diana D'souza
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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RQ.22.

17

Sales
Variable Cost
Contribution

O1
60,000
10500
49500

O2
60,000
11500
48500

Calculations:
Variable Cost of O1
Variable cost per hour dept 1 X O1 hours of dept 1 + Variable per hour dept 2 X O1 hours of dept 2 +
Variable cost per hour dept 3 X O1 hours of dept 3
= 3.50 x 1000 + 2.50 x 400 + 3.00 x 2000 = 10500 (VC)
Variable Cost of O2
Variable cost per hour dept 1 X O2 hours of dept 1 + Variable per hour dept 2 X O2 hours of dept 2 +
Variable cost per hour dept 3 X O2 hours of dept 3
= 3.50 x 2000 + 2.50 x 600 + 3.00 x 1000 = 11500 (VC)
Contribution of O1
= Sales VC
= 60,000 10500 = 49500

Contribution of O2
= Sales VC
= 60,000 11500 = 48500

Profit of O1
= Contribution Fixed Cost
= 49500 15,000 = 34500

Profit of O2
= Contribution Fixed Cost
= 48500 15,000 = 33500

(Given FC = 15,000)

We can accept both the orders since produst O1 ans O2 give profits with only a minimal difference
of 1000 between them.

RQ 22.18
MIX 1

Variable
Cost
Sales
Contribution
P/V ratio

X
2,40,000

Y
1,50,000

Z
60,000

6,00,000
3,60,000
60%

3,00,000
1,50,000
50%

1,00,000
40,000
40%

MIX 2
X
1,20,000

Variable
Cost
Sales
3,00,000
Contribution 1,80,000
P/V ratio
60%

Y
1,00,000

Z
3,00,000

2,00,000
1,00,000
50%

5,00,000
2,00,000
40%

Calculations:
No of Units (X) , (Y) and (Z) respectively for MIX 1
Sales
= 6,00,000 = 20,000
Price/unit
30
Sales
= 3,00,000 = 7500
Price/unit
40
Sales
= 1,00,000 = 4000
Price/unit
25
MIX 2:
Sales
= 3,00,000 = 10,000
Price/unit
30

Sales
= 2,00,000 = 5000
Price/unit
40
Sales
= 5,00,000 = 20000
Price/unit
25

Variable cost : (MIX 1)


No of units x Variable cost/unit = Variable cost
20,000 x 12 = 2,40,000 (X)
7500 x 20 = 1,50,000 (Y)
4000 x 15 = 60,000 (Z)
(MIX 2)
10,000 x 12 = 1,20,000 (X)
5000 x 20 = 1,00,000 (Y)
20,000 x 15 = 3,00,000 (Z)
Contribution (MIX 1)
Sales Variable cost = Contribution
6,00,000 2,40,000 = 3,60,000 (X)
3,00,000 1,50,000 = 1,50,000 (Y)
1,00,000 60,000 = 40,000 (Z)
MIX 2
3,00,000 1,20,000 = 1,80,000 (X)
2,00,000 1,00,000 = 1,00,000 (Y)
5,00,000 3,00,000 = 2,00,000 (Z)
PV ratio : MIX 1
PV ratio = Contribution x 100
Sales
= 3,60,000/6,00,000 x 100 = 60%

= 1,50,000 /3,00,000 x 100 = 50%


= 40,000/1,00,000 x 100 = 40%
MIX 2
= 1,80,000 /3,00,000 x 100 = 60%
= 1,00,000 /2,00,000 x 100 = 50%
= 2,00,000 /5,00,000 x 100 = 40%
Since the PV ratio of both MIX 1 and MIX 2 are the same we calculate the net income of mix 1 and 2
Total cost = Variable cost + Fixed Cost
MIX 1:
TC = 2,40,000 + 1,50,000 + 60,000 + 2,64,000
= 7,14,000

MIX 2:
TC = 1,20,000 + 1,00,000 + 3,00,000 + 2,64,000
= 7,84,000
As we know net income = Total Sales total cost
Mix 1 :
(6,00,000 +3,00,000 + 1,00,000 ) 7,14,000 = 2,86,000
Mix 2:
(3,00,000 +2,00,000 + 5,00,000 ) 7,84,000 = 2,16,000
Therefore we go for mix 1 as the net income of Mix 1 is more than that of Mix 2

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