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.
|
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