ACCA PM · Chapter 5 · Question 5 of 10
Kappa Co sells two products in the constant unit ratio of 3 units of A to 2 units of B. Product A sells for $20 with variable cost of $12 per unit. Product B sells for $30 with variable cost of $15 per unit. Fixed costs are $186,000 per period. What sales revenue is needed, in the standard mix, to earn a profit of $45,000 (to the nearest $)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $513,333
Explanation
Required contribution = fixed costs + target profit = $186,000 + $45,000 = $231,000. Required revenue = $231,000 / 0.45 = $513,333 (rounded). Simply adding the profit to breakeven revenue ignores the fact that each $1 of sales only adds $0.45 of contribution.
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