XYZ Ltd retails a product range which can conveniently be divided into three distinct lines X, Y and Z. Based on sales forecasts provided by the marketing department and costs prepared by various other departments the following budgeted operating statement has been prepared:

The accounting system provides a full allocation of all fixed costs to product lines but only some are specific, others are common to all lines.
Required:

(a) Calculate the value of sales at which each product line would cover:
(i) its specific fixed costs (ii) all costs assigned to it.
Explain the significance of these figures, making reference to which is more meaningful.

(b) Calculate the value of the gross sales at which the company would break even given the present sales mix. Explain briefly why this may not be the sum of the values in

(a) (ii).

Answers to

(a) and

(b) may be expressed to the nearest £1,000.

(c) Explain the product life cycle and discuss how an appreciation of this concept provides additional insight into the results of break-even calculations.

Transcribed Image Text:

Variable (000) Fixed Total (000) (000) 6,000 Sales Costs: Goods for resale 3,048 3,048 Admin expenses 278 342 620 Marketing expenses 454 678 1,132 Total expenses 3,780 1,020 4,800 Net profit 1,200 An analysis of revenue and costs by product line reveals the following information: Product line Sales Fixed costs Variable costs Specific Other (000) (000) (000) (000) X 2,000 105 115 1,160 Y 2,500 184 266 1,600 Z 1,500 61 289 1,020 6,000 350 670 3,780