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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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

To determine

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

To explain: the effect of sales mix on the calculation of the break-even point.

Explanation

Sales mix refers to the relative distribution of the total sales among the number of products sold by a company. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.

Thus, for the break-even analysis, each product is considered as the components of an overall product of the company. The unit selling price of the overall product is the sum of the selling price per unit of each product multiplied with its related sales mix percentage...

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