   Chapter 11, Problem 16CDQ

Chapter
Section
Textbook Problem

How does the sales mix affect the calculation of the break-even point?

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit)

Weighted Average Contribution Margin:

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

Weighted Average Contribution Margin = (Contribution margin of Product A * Weight of product A)                                                                       + (Contribution margin of Product B * Weight of product B)

To Indicate:

The effect of sales mix on Breakeven point calculation

Explanation

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit)  In case of a sale mix the breakeven point is calculated with the help of weighted average contribution margin.

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

Weighted Average Contribution Margin = (Contribution margin of Produ

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit)

Weighted Average Contribution Margin:

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

Weighted Average Contribution Margin = (Contribution margin of Product A * Weight of product A)                                                                       + (Contribution margin of Product B * Weight of product B)

Requirement-b:

To Calculate:

The Breakeven Sales unit for each product

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