61 In a multi-product company, as the mix of the products being sold changes, the overallcontribution margin ratio will also change. If the shift in mix is toward the less profitableproducts, then the contribution margin ratio will * OfallriseO not changeO change in direct proportion to break-even point

Overall contribution margin is the mix of individual contribution margin with the weights of their…

Answered: In a multi-product company, as the mix…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

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Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 16MC: Break-even for a multiple product firm. can be calculated by dividing total fixed costs by the...

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Break-even for a multiple product firm. can be calculated by dividing total fixed costs by the contribution margin of a composite unit can be calculated by multiplying fixed costs by the contribution margin ratio of a composite unit can only be calculated when the proportion of products sold is the same for all products can be calculated by multiplying fixed costs by the contribution margin ratio of the most common product in the sales mix
Would each of the following increase, decrease, or have an indeterminant effect on a firms break-even point (unit sales)? a. The sales price increases with no change in unit costs. b. An increase in fixed costs is accompanied by a decrease in variable costs. c. Variable labor costs decline; other things are held constant.
In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do not want to remain at the break-even point.
When a Dupont analysis reveals that a company has much higher than average asset turnover and much lower than average profit margin, what can be concluded about the companys strategy? a. It is a product differentiator. c. It has no strategy. b. It needs to concentrate on improve- d. It is a low-cost provider ing its profit margins.
The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. unit contribution margin. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
A company accepts incremental business at a special price that exceeds the variable cost. What other issues must the company consider in deciding whether to accept the business?
Morrisons Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price? a. The buying unit has excess capacity. b. The selling unit is operating at full capacity. c. Routine sales commissions and collection costs would be avoided. d. The profit centers managers are evaluated on the basis of unit operating income.
Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
As a manager, you have to choose between two options for new production equipment. Machine A will increase fixed costs by a substantial margin but will produce greater sales volume at the current price. Machine B will only slightly increase fixed costs but will produce considerable savings on variable cost per unit. No additional sales are anticipated if Machine B is selected. What are the relative merits of both machines, and how could you go about analyzing which machine is the better investment for the company in terms of both net operating income and break-even?
Explain how break-even analysis for a multi-product company differs from a company selling a single product.
Each of a company's two product lines has a different contribution margin ratio . If the company's total sales remain the same but the sales mix shifts toward selling more of the product with the higher contribution ratio , which of the following is true ? O a Fixed cost will be constant . . the breakeven point will decrease . Ocall of the answers are true . d the average contribution margin ratio will increase . O e operating income will increase
Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the sales mix shifts toward selling more of the product with the lower contribution ratio, which of the following is true? a. operating income will decrease. b. all of the answers are true . c. the breakeven point will increase . d. Fixed cost will be constant . e. the average contribution margin ratio will decrease

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