This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
Here are the calculations for part c): c) The following information has been provided: Total sales: Ksh 600,000 Selling Price Per Unit: Ksh 200 Variable Cost Per Unit: Ksh 80 Fixed Cost: Ksh 150,000 1) Calculate the P/V Ratio. Step 1: Calculate the Contribution Margin per unit. Contribution Margin per unit = Selling Price per unit - Variable Cost per unit Contribution Margin per unit = Ksh 200 - Ksh 80 = Ksh 120 Step 2: Calculate the P/V Ratio. P/V Ratio = Contribution Margin per unitSelling Price per unit × 100\% P/V Ratio = Ksh 120Ksh 200 × 100\% P/V Ratio = 0.60 × 100\% = 60\% The P/V Ratio is also known as the Contribution Margin Ratio. P/V Ratio = 60\% 2) Calculate the Break-Even Point. Step 1: Calculate the Break-Even Point in Units. Break-Even Point (Units) = Fixed CostsContribution Margin per unit Break-Even Point (Units) = Ksh 150,000Ksh 120 per unit Break-Even Point (Units) = 1,250 units Step 2: Calculate the Break-Even Point in Sales Revenue. Break-Even Point (Sales Revenue) = Fixed CostsP/V Ratio Break-Even Point (Sales Revenue) = Ksh 150,0000.60 Break-Even Point (Sales Revenue) = Ksh 250,000 Break-Even Point = 1,250 units or Ksh 250,000 3) If the selling price is reduced to Ksh 100, calculate the New Break-Even Point. Step 1: Calculate the New Contribution Margin per unit. New Selling Price per unit = Ksh 100 Variable Cost per unit = Ksh 80 New Contribution Margin per unit = New Selling Price per unit - Variable Cost per unit New Contribution Margin per unit = Ksh 100 - Ksh 80 = Ksh 20 Step 2: Calculate the New Break-Even Point in Units. Fixed Costs = Ksh 150,000 New Break-Even Point (Units) = Fixed CostsNew Contribution Margin per unit New Break-Even Point (Units) = Ksh 150,000Ksh 20 per unit New Break-Even Point (Units) = 7,500 units Step 3: Calculate the New P/V Ratio (optional, for calculating Break-Even Point in Sales Revenue). New P/V Ratio = New Contribution Margin per unitNew Selling Price per unit × 100\% New P/V Ratio = Ksh 20Ksh 100 × 100\% = 20\% Step 4: Calculate the New Break-Even Point in Sales Revenue. New Break-Even Point (Sales Revenue) = Fixed CostsNew P/V Ratio New Break-Even Point (Sales Revenue) = Ksh 150,0000.20 New Break-Even Point (Sales Revenue) = Ksh 750,000 New Break-Even Point = 7,500 units or Ksh 750,000 That's 2 down. 3 left today — send the next one.