Assignment No: 1

Topic: CVP analysis.

Student Name: ______ Asif________________________________ Student ID: ____________10841______________________

Answers
a) Calculation of contribution margin ratio of each product:
Mega Muscle Power Gym Pro Force

Selling price per unit 280 400 580

Contribution margin per unit 84 154 116

(Contribution margin ratio/selling price per unit *100) 30% 38.5% 20%

b) Calculate the firm’s overall contribution margin ratio.

Mega Muscle Power Gym Pro Force Total

Selling price per unit 280 400 580

Contribution margin per unit 84 154 116

Monthly sales volume-units 6,000 4,000 2,000

Total sales (selling price*sales volume) 1680000 1600000 1600000 4440000

Total contribution (contribution per unit*sales volume) 504000 616000 232000 1352000

Overall contribution margin ratio = total contribution/total revenue*100 = 30.45%

c) Breakeven point (in sales) = (Fixed expenses)/(contribution margin ratio)= 1,280,000/(30.45%) = $ 4203612.48

d) Operating income = total contribution – fixed expenses = 1352000 – 1280000 = $ 72000

e) I would not recommend discontinuance of Pro Force as though the sales volume and contribution margin ratio
are low, still the product is yielding profits for the company. Discontinuance will leave the factors of production
idle. Thus, it is better to keep them employed in production of Pro Force.

f) Additional contribution by producing 1000 units of Power Gym = 1000*154 = $154000. Fixed cost saved= $
20000
Since Power Gym has the highest contribution margin, transferring resources to its production is recommended
as it will give a higher proportion of profits for the firm.