ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)
A company sells a single product for $20 per unit. Variable cost is $12 per unit and fixed costs are $48,000 per period. On a profit-volume chart, at what level of sales activity does the plotted line cross the horizontal (volume) axis, and what is the loss at zero sales?
The line crosses the axis at 6,000 units, being fixed costs of $48,000 divided by contribution of $8 per unit, and the loss at zero sales equals the fixed costs of $48,000.
- A6,000 units; loss of $48,000Correct
- B4,000 units; loss of $48,000
- C6,000 units; loss of $72,000
- D2,400 units; loss of $48,000
Explanation
Contribution per unit = 20 - 12 = $8. Break-even = 48,000 / 8 = 6,000 units, where the line crosses the axis. At zero sales the loss equals fixed costs of $48,000. Using the sales price of $20 instead gives 2,400 units, which wrongly ignores variable costs.
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