## Thursday, 1 May 2014

### Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below: Product Q91I Product J53Z Sales \$ 15,800 \$ 11,800 Variable expenses \$ 5,800 \$ 5,060 ________________________________________ Fixed expenses for the entire company were \$13,930. Required: a. Determine the overall contribution margin ratio for the company. (Round your answer to 2 decimal places.) Contribution margin ratio b. Determine the overall break-even point in total sales dollars for the company. (Round your intermediate calculation to 2 decimal places and final answer to the nearest dollar amount. Omit the "\$" sign in your response.) Break-even point \$ c. If the sales mix shifts toward Product Q91I with no change in total sales, what will happen to the break-even point for the company? It will result in a decrease in the company's overall break-even point. Explanation: a. Product Q91I Product J53Z Total Sales \$ 15,800 \$ 11,800 \$ 27,600 Variable expenses 5,800 5,060 10,860 ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ Contribution margin \$ 10,000 \$ 6,740 16,740 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Fixed expenses 13,930 ________________________________________ ________________________________________ Net operating income \$ 2,810 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Overall CM ratio = Total contribution margin/Total sales = \$16,740/\$27,600 = 0.61 b. Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = \$13,930/0.61 = \$22,836 c. Product Q91I Product J53Z Sales (a) \$ 15,800 \$ 11,800 Contribution margin (b) \$ 10,000 \$ 6,740 CM ratio (b)÷(a) 0.633 0.571 ________________________________________ Since Product Q91I's CM ratio is greater than Product J53Z's, a shift in the sales mix toward Product Q91I will result in a decrease in the company's overall break-even point.

 Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

 Product Q91I Product J53Z Sales \$ 15,800 \$ 11,800 Variable expenses \$ 5,800 \$ 5,060

 Fixed expenses for the entire company were \$13,930.

 Required: a. Determine the overall contribution margin ratio for the company. (Round your answer to 2 decimal places.)

 b. Determine the overall break-even point in total sales dollars for the company. (Round your intermediate calculation to 2 decimal places and final answer to the nearest dollar amount. Omit the "\$" sign in your response.)

 Break-even point \$

 c. If the sales mix shifts toward Product Q91I with no change in total sales, what will happen to the break-even point for the company?

It will result in a decrease in the company's overall break-even point.

Explanation:
a.
 Product Q91I Product J53Z Total Sales \$ 15,800 \$ 11,800 \$ 27,600 Variable expenses 5,800 5,060 10,860 Contribution margin \$ 10,000 \$ 6,740 16,740 Fixed expenses 13,930 Net operating income \$ 2,810

 Overall CM ratio = Total contribution margin/Total sales = \$16,740/\$27,600 = 0.61

b.
 Break-even point in total sales dollars = Fixed expenses/Overall CM ratio = \$13,930/0.61 = \$22,836

c.
 Product Q91I Product J53Z Sales (a) \$ 15,800 \$ 11,800 Contribution margin (b) \$ 10,000 \$ 6,740 CM ratio (b)÷(a) 0.633 0.571

 Since Product Q91I's CM ratio is greater than Product J53Z's, a shift in the sales mix toward Product Q91I will result in a decrease in the company's overall break-even point.