CAF-5 · Chapter 17 · Question 13 of 20
(CVP Analysis & Multi-Product Break-even) A company sells a fixed bundle of 2 units of Product A and 1 unit of Product B. Product A has a selling price of Rs. 50 and a variable cost of Rs. 30. Product B has a selling price of Rs. 100 and a variable cost of Rs. 60. Total fixed costs are Rs. 200,000. If the company is currently generating Rs. 1,200,000 in total sales revenue, what is its Margin of Safety (in percentage)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 58.33%
Explanation
Contribution of bundle (2A + 1B) = 2(50-30) + 1(100-60) = 40 + 40 = Rs. 80. Revenue of bundle = 2(50) + 1(100) = Rs. 200. C/S Ratio = 80 / 200 = 40%. Break-even Sales = Fixed Costs (200k) / 0.40 = Rs. 500,000. Margin of Safety % = (Actual Sales - BE Sales) / Actual Sales = (1.2m - 0.5m) / 1.2m = 700k / 1.2m = 58.33%.
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