Cost and Management Accounting — BEP, Cost Sheets & Contract Costing: 18 flashcards
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1. What is the weighted average contribution margin per unit (WACMPU)?
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The sum of each product's contribution per unit multiplied by its share in the sales mix.
2. Formula for overall break-even point in units for a multi-product firm
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$$\text{BEP (units)} = \frac{\text{Total Fixed Cost}}{\text{WACMPU}}$$
3. How do you find the break-even units for each individual product?
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Multiply the overall BEP by that product's share in the sales mix.
4. Formula for required sales units to earn a desired profit
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$$\text{Required units} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{WACMPU}}$$
5. In the source data, what is the CM per unit for P1 and P2?
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Both P1 and P2 have a contribution margin of Rs. 5 per unit.
6. What is the overall BEP for the source data?
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6,000 units (Rs. 30,000 ÷ Rs. 5).
7. Product-wise BEP for P1 and P2 in the source data
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P1 = 3,600 units; P2 = 2,400 units.
8. Required sales units for a desired profit of Rs. 30,000
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12,000 units — (30,000 + 30,000) ÷ 5.
9. What happens to the overall BEP when the sales mix is reversed?
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It stays at 6,000 units because both products have equal CM; only the product-wise split flips.
10. New CM for P1 after a 10% rise in its variable cost
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Rs. 4.50 (price Rs. 10 − new VC Rs. 5.50).
11. New WACMPU after P1's variable cost rises by 10%
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Rs. 4.70 = 4.50(0.6) + 5(0.4).
12. New overall BEP after P1's variable cost rises by 10%
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Approximately 6,383 units (30,000 ÷ 4.70).
13. How is contribution margin per unit calculated?
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Selling price per unit − Variable cost per unit.
14. Why must fixed cost NOT be split between products before computing BEP?
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Fixed cost is a company-level figure; it must be divided by the weighted average CM, then the total is split by mix.
15. What is margin of safety?
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Actual (or target) sales − Break-even sales.
16. Which product improves WACMPU faster when its mix share increases?
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The product with the higher contribution margin per unit.
17. Key assumption of break-even analysis regarding price, cost and mix
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Selling price, variable cost, and sales mix remain constant.
18. Why does cost control on high-volume products matter most?
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It has the largest impact on the overall BEP because those units dominate the weighted average.
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