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.