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Unformatted text preview: Cost-Volume-Profit Relationships Chapter Six The Contribution Format Let’s put our knowledge of cost behavior to work by preparing a contribution format income statement. The Contribution Format Sales Revenue Less: Variable costs Contribution margin Less: Fixed costs Net operating income Total $ 100,000 60,000 $ 40,000 30,000 $ 10,000 Unit $ 50 30 $ 20 The contribution margin format emphasizes The contribution margin format emphasizes cost behavior. Contribution margin covers fixed cost behavior. Contribution margin covers fixed costs and provides for income. costs and provides for income. Uses of the Contribution Format The contribution income statement format is used The contribution income statement format is used The as an internal planning and decision making tool. as an internal planning and decision making tool. We will use this approach for: We will use this approach for: 1. Cost-volume-profit analysis (Chapter 6). 1. Cost-volume-profit analysis (Chapter 6). 2. Budgeting (Chapter 9). 2. Budgeting (Chapter 9). 3. Segmented reporting of profit data (Chapter 12). 3. Segmented reporting of profit data (Chapter 12). 4. Special decisions such as pricing and make-or4. Special decisions such as pricing and make-orbuy analysis (Chapter 13). buy analysis (Chapter 13). The Contribution Format Comparison of the Contribution Income Statement with the Traditional Income Statement Traditional Approach (costs organized by function) Sales $ 100,000 Less cost of goods sold 70,000 Gross margin $ 30,000 Less operating expenses 20,000 Net operating income $ 10,000 Contribution Approach (costs organized by behavior) Sales $ 100,000 Less variable expenses 60,000 Contribution margin $ 40,000 Less fixed expenses 30,000 Net operating income $ 10,000 Used primarily for Used external reporting. Used primarily by management. Learning Objective 1 Explain how changes in activity affect contribution margin and net operating income. Basics of Cost-Volume-Profit Analysis Contribution Margin (CM) is the amount Contribution Margin (CM) is the amount remaining from sales revenue after variable remaining from sales revenue after variable expenses have been deducted. expenses have been deducted. Basics of Cost-Volume-Profit Analysis CM is used first to cover fixed CM expenses. Any remaining CM contributes to net operating income. Sales, variable expenses, and contribution margin can also be expressed on a per unit basis. If Racing sells an additional bicycle, $200 additional CM will be generated to cover fixed expenses and profit. The Contribution Approach The Contribution Approach Each month, Racing must generate at least $80,000 in total CM to break even. The Contribution Approach If Racing sells 400 units in a month, it will be operating at the break-even point. The Contribution Approach If Racing sells one more bike (401 bikes), net operating income will increase by $200. Prestudy-1 The Contribution Approach We do not need to prepare an income statement to estimate profits at a particular sales volume. Simply multiply the number of units sold above break-even by the contribution margin per unit. If Racing sells 430 bikes, its net income will be $6,000. Learning Objective 2 Prepare and interpret a cost-volume-profit (CVP) graph. CVP Relationships in Graphic Form The relationship among revenue, cost, profit and volume can be expressed graphically by preparing a CVP graph. Racing developed contribution margin income statements at 300, 400, and 500 units sold. We will use this information to prepare the CVP graph. IIncome ncome 300 units 300 units Sales $ 150,000 Sales $ 150,000 Less: variable expenses 90,000 Less: variable expenses 90,000 Contribution margin $ 60,000 Contribution margin $ 60,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net operating income Net operating income $ (20,000) $ (20,000) Income Income 400 units 400 units $ 200,000 $ 200,000 120,000 120,000 $ 80,000 $ 80,000 80,000 80,000 $ -$ Income Income 500 units 500 units $ 250,000 $ 250,000 150,000 150,000 $ 100,000 $ 100,000 80,000 80,000 $ 20,000 $ 20,000 Prestudy-2 CVP Graph 450,000 400,000 350,000 300,000 Dollars 250,000 200,000 150,000 100,000 50,000 100 200 300 400 500 600 700 800 In a CVP graph, unit volume is In unit is usually represented on the horizontal (X) axis and dollars on horizontal and dollars on the vertical (Y) axis. vertical Units CVP Graph 450,000 400,000 350,000 300,000 Dollars 250,000 200,000 150,000 100,000 50,000 100 200 300 400 500 600 700 800 Fixed Expenses Units CVP Graph 450,000 400,000 350,000 300,000 Dollars 250,000 200,000 150,000 100,000 50,000 - Total Expenses Fixed Expenses 100 200 300 400 500 600 700 800 Units CVP Graph 450,000 400,000 350,000 300,000 Total Sales Total Expenses Fixed Expenses Dollars 250,000 200,000 150,000 100,000 50,000 - 100 200 300 400 500 600 700 800 Units CVP Graph 450,000 400,000 350,000 300,000 Break-even point Break Break-even (400 units or $200,000 in sales) Dollars 250,000 200,000 150,000 100,000 50,000 100 200 300 400 500 Pro re a fit A oss L rea A 600 700 800 Units Learning Objective 3 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. Contribution Margin Ratio The contribution margin ratio is: Total CM CM Ratio = Total sales For Racing Bicycle Company the ratio is: $80,000 = 40% $200,000 Each $1.00 increase in sales results in a total contribution margin increase of 40¢. Contribution Margin Ratio Or, in terms of units, the contribution margin ratio is: Unit CM CM Ratio = Unit selling price For Racing Bicycle Company the ratio is: $200 = 40% $500 Contribution Margin Ratio 400 Bikes 400 Bikes Sales $ 200,000 Sales $ 200,000 Less: variable expenses 120,000 Less: variable expenses 120,000 Contribution margin 80,000 Contribution margin 80,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net operating income $ -Net operating income $ 500 Bikes 500 Bikes $ 250,000 $ 250,000 150,000 150,000 100,000 100,000 80,000 80,000 $ 20,000 $ 20,000 A $50,000 increase in sales revenue results in a $20,000 increase in CM. ($50,000 × 40% = $20,000) 40% Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the CM Ratio for Coffee Klatch? a. 1.319 b. 0.758 c. 0.242 d. 4.139 Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the CM Ratio for Coffee Klatch? a. 1.319 Unit contribution margin CM Ratio = b. 0.758 Unit selling price c. 0.242 ($1.49-$0.36) = d. 4.139 $1.49 = $1.13 = 0.758 $1.49 Prestudy-3 Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are $84,000. If the company's sales for a month are $738,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. A) $565,440 B) $654,000 C) $88,560 D) $4,560 Learning Objective 4 Show the effects on contribution margin of changes in variable costs, fixed costs, selling price, and volume. Changes in Fixed Costs and Sales Volume What is the profit impact if Racing can increase unit sales from 500 to 540 by increasing the monthly advertising budget by $10,000? Changes in Fixed Costs and Salesadvertising = $90,000 Volume $80,000 + $10,000 advertising = $90,000 $80,000 + $10,000 Sales increased by $20,000, but net operating Sales iincreased by $20,000, but net operating Sales ncreased by income decreased by $2,000.. income decreased by $2,000 decreased by Changes in Fixed Costs and Sales Volume The Shortcut Solution Increase in CM (40 units X $200) Increase in advertising expenses Decrease in net operating income $ 8,000 10,000 $ (2,000) Prestudy-4 Change in Variable Costs and Sales Volume What is the profit impact if Racing can use higher quality raw materials, thus increasing variable costs per unit by $10, to generate an increase in unit sales from 500 to 580? Change in Variable Costs and Sales Volume 580 units × $310 variable cost/unit = $179,800 580 units × $310 variable cost/unit = $179,800 $310 Sales increase by $40,000, and net operating income Sales iincrease by $40,000, and net operating income Sales ncrease by increases by $10,200.. iincreases by $10,200 ncreases by Change in Fixed Cost, Sales Price and Volume What is the profit impact if Racing (1) cuts its selling price $20 per unit, (2) increases its advertising budget by $15,000 per month, and (3) increases sales from 500 to 650 units per month? Change in Fixed Cost, Sales Price and Volume Sales increase by $62,000, fixed costs increase by Sales iincrease by $62,000, fixed costs increase by Sales ncrease by $15,000, and net operating income increases by $2,000.. $15,000, and net operating income iincreases by $2,000 ncreases by Change in Variable Cost, Fixed Cost and Sales Volume What is the profit impact if Racing (1) pays a $15 sales commission per bike sold instead of paying salespersons flat salaries that currently total $6,000 per month, and (2) increases unit sales from 500 to 575 bikes? Change in Variable Cost, Fixed Cost and Sales Volume Sales increase by $37,500, variable costs increase by Sales iincrease by $37,500, variable costs iincrease by Sales ncrease by ncrease by $31,125, but fixed expenses decrease by $6,000.. $31,125, but fixed expenses decrease by $6,000 decrease by Change in Regular Sales Price If Racing has an opportunity to sell 150 bikes to a wholesaler without disturbing sales to other customers or fixed expenses, what price would it quote to the wholesaler if it wants to increase monthly profits by $3,000? Change in Regular Sales Price $ 3,000 ÷ 150 bikes $ 3,000 ÷ 150 bikes Variable cost per bike Variable cost per bike Selling price required Selling price required = = = = = = $ 20 per bike $ 20 per bike 300 per bike 300 per bike $ 320 per bike $ 320 per bike 150 bikes × $320 per bike 150 bikes × $320 per bike Total variable costs Total variable costs Increase in net income Increase in net income = = = = = = $ 48,000 $ 48,000 45,000 45,000 $ 3,000 $ 3,000 Learning Objective 5 Compute the breakeven point in unit sales and sales dollars. Break-Even Analysis Break-even analysis can be approached in two ways: 1. Equation method 2. Contribution margin method Equation Method Profits = (Sales – Variable expenses) – Fixed expenses OR Sales = Variable expenses + Fixed expenses + Profits At the break-even point profits equal zero Break-Even Analysis Here is the information from Racing Bicycle Company: TTotal otal Sales (500 bikes) $$250,000 Sales (500 bikes) 250,000 Less: variable expenses 150,000 Less: variable expenses 150,000 Contribution margin $$100,000 Contribution margin 100,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net operating income $$ 20,000 Net operating income 20,000 Per Unit Per Unit $$ 500 500 300 300 $$ 200 200 Percent Percent 100% 100% 60% 60% 40% 40% Equation Method We calculate the break-even point as follows: Sales = Variable expenses + Fixed expenses + Profits $500Q = $300Q + $80,000 + $0 Where: Q = Number of bikes sold $500 = Unit selling price $300 = Unit variable expense $80,000 = Total fixed expense Equation Method We calculate the break-even point as follows: Sales = Variable expenses + Fixed expenses + Profits $500Q = $300Q + $80,000 + $0 $200Q = $80,000 Q = $80,000 ÷ $200 per bike Q = 400 bikes Prestudy-5 Borich Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit $150.00 Variable expense per unit $73.50 Fixed expense per month $308,295 The break-even in monthly unit sales is closest to: A) 2,055 B) 4,030 C) 4,194 D) 3,426 Equation Method The equation can be modified to calculate the break-even point in sales dollars. Sales = Variable expenses + Fixed expenses + Profits X = 0.60X + $80,000 + $0 Where: X = Total sales dollars 0.60 = Variable expenses as a % of sales $80,000 = Total fixed expenses Equation Method The equation can be modified to calculate the break-even point in sales dollars. Sales = Variable expenses + Fixed expenses + Profits X = 0.60X + $80,000 + $0 0.40X = $80,000 X = $80,000 ÷ 0.40 X = $200,000 Contribution Margin Method The contribution margin method has two key equations. Break-even point = in units sold Fixed expenses CM per unit Break-even point in Fixed expenses = total sales dollars CM ratio Contribution Margin Method Let’s use the contribution margin method to calculate the break-even point in total sales dollars at Racing. Break-even point in Fixed expenses = total sales dollars CM ratio $80,000 = $200,000 break-even sales 40% Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the break-even sales in units? a.. 872 cups a b. 3,611 cups c. 1,200 cups d. 1,150 cups Quick Check Coffee Klatch is an espresso stand in a Coffee downtown office building. The average selling price of a cup of coffee is $1.49 and Fixed cup is the average variable expense per expenses Break-even = CM per $0.36. The average fixed expenseper Unit month is $1,300. 2,100 cups $1,300 are sold each = $1.49/cup $0.36/cup month on average. What is the-break-even sales in units? $1,300 = $1.13/cup a.. 872 cups a = 1,150 cups b. 3,611 cups c. 1,200 cups d. 1,150 cups Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the break-even sales in dollars? a. $1,300 b. $1,715 c. $1,788 d. $3,129 Quick Check Coffee Klatch is an espresso stand in a Coffee downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the break-even sales in dollars? Fixed expenses Break-even = a. $1,300 CM Ratio sales $1,300 b. $1,715 = 0.758 c. $1,788 = $1,715 d. $3,129 Learning Objective 6 Determine the level of sales needed to achieve a desired target profit. Target Profit Analysis The equation and contribution margin methods can be used to determine the sales volume needed to achieve a target profit. Suppose Racing Bicycle Company wants to know how many bikes must be sold to earn a profit of $100,000. The CVP Equation Method Sales = Variable expenses + Fixed expenses + Profits $500Q = $300Q + $80,000 + $100,000 $200Q = $180,000 Q = 900 bikes The Contribution Margin Approach The contribution margin method can be used to determine that 900 bikes must be sold to earn the target profit of $100,000. Unit sales to attain= Fixed expenses + Target profit the target profit CM per unit $80,000 + $100,000 = 900 bikes $200/bike Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. How many cups of coffee would have to be sold to attain target profits of $2,500 per month? a. 3,363 cups b. 2,212 cups c. 1,150 cups d. 4,200 cups Fixed expenses + Target profit to attain = Unit CM Coffee target profitan espresso stand in a Coffee Klatch is downtown office building. + $2,500 $1,300 The average = selling price of a cup of coffee is $1.49 and $1.49 - $0.36 Quick Check Unit sales the average variable $3,800 expense per cup is = $0.36. The average fixed expense per month $1.13 is $1,300. How many cups of coffee would = 3,363 cups have to be sold to attain target profits of $2,500 per month? a. 3,363 cups b. 2,212 cups c. 1,150 cups d. 4,200 cups Prestudy-6 Product Y sells for $15 per unit, and has related variable expenses of $9 per unit. Fixed expenses total $300,000 per year. How many units of Product Y must be sold each year to yield an annual profit of $90,000: A) 50,000 units B) 65,000 units C) 15,000 units D) 43,333 units Learning Objective 7 Compute the margin of safety and explain its significance. The Margin of Safety The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of sales. Margin of safety = Total sales - Break-even sales Let’s look at Racing Bicycle Company and determine the margin of safety. The Margin of Safety If we assume that Racing Bicycle Company has actual sales of $250,000, given that we have already determined the break-even sales to be $200,000, the margin of safety is $50,000 as shown. Break-even Break-even sales sales 400 units 400 units Sales $ 200,000 Sales $ 200,000 Less: variable expenses 120,000 Less: variable expenses 120,000 Contribution margin 80,000 Contribution margin 80,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net operating income $ -Net operating income $ Actual sales Actual sales 500 units 500 units $ 250,000 $ 250,000 150,000 150,000 100,000 100,000 80,000 80,000 $ 20,000 $ 20,000 The Margin of Safety The margin of safety can be expressed as 20% of sales. ($50,000 ÷ $250,000) Break-even Break-even sales sales 400 units 400 units Sales $ 200,000 Sales $ 200,000 Less: variable expenses 120,000 Less: variable expenses 120,000 Contribution margin 80,000 Contribution margin 80,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net operating income $ -Net operating income $ Actual sales Actual sales 500 units 500 units $ 250,000 $ 250,000 150,000 150,000 100,000 100,000 80,000 80,000 $ $ 20,000 20,000 The Margin of Safety The margin of safety can be expressed in terms of the number of units sold. The margin of safety at Racing is $50,000, and each bike sells for $500. Margin of $50,000 = = 100 bikes Safety in units $500 Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the margin of safety? a. 3,250 cups b. 950 cups c. 1,150 cups d. 2,100 cups Quick Check Coffee Klatchsafety = Total sales – Break-even sales Coffee Margin of is an espresso stand in a = 2,100 The average downtown office building.cups – 1,150 cups = 50 cups selling price of a cup9of coffee is $1.49 and the average variable expense per cup is or 950 cups $0.36. The average fixed expense per month Margin of safety = 45% percentage are2,100 cups = month on is $1,300. 2,100 cups sold each average. What is the margin of safety? a. 3,250 cups b. 950 cups c. 1,150 cups d. 2,100 cups Prestudy-7 Mcmurtry Corporation sells a product for $170 per unit. The product's current sales are 10,000 units and its break-even sales are 8,100 units. The margin of safety as a percentage of sales is closest to: A) 23% B) 81% C) 19% D) 77% Cost Structure and Profit Stability Cost structure refers to the relative proportion of fixed and variable costs in an organization. Managers often have some latitude in determining their organization’s cost structure. Cost Structure and Profit Stability There are advantages and disadvantages to high fixed cost (or low variable cost) and low fixed cost (or high variable cost) structures. An advantage of a high fixed An cost structure is that income will be higher in good years compared to companies A disadvantage of a high fixed disadvantage with lower proportion of cost structure is that income fixed costs. will be lower in bad years compared to companies with lower proportion of fixed costs. Learning Objective 8 Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. Operating Leverage A measure of how sensitive net operating income is to percentage changes in sales. Degree of Contribution margin = operating leverage Net operating income Operating Leverage At Racing, the degree of operating leverage is 5. Actual sales Actual sales 500 Bikes 500 Bikes Sales $ 250,000 Sales $ 250,000 Less: variable expenses 150,000 Less: variable expenses 150,000 Contribution margin 100,000 Contribution margin 100,000 Less: fixed expenses 80,000 Less: fixed expenses 80,000 Net income $ 20,000 Net income $ 20,000 $100,000 = 5 $20,000 Operating Leverage With an operating leverage of 5, if Racing increases its sales by 10%, net operating income would increase by 50%. Percent increase in sales Degree of operating leverage Percent increase in profits 10% 5 50% × Here’s the verification! Operating Leverage Actual sales (500) Sales $ 250,000 Less variable expenses 150,000 Contribution margin 100,000 Less fixed expenses 80,000 Net operating income $ 20,000 Increased sales (550) $ 275,000 165,000 110,000 80,000 $ 30,000 10% increase in sales from 10% $250,000 to $275,000 . . . . . . results in a 50% increase in income from $20,000 to $30,000. Quick Check Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. 2,100 cups are sold each month on average. What is the operating leverage? a. 2.21 b. 0.45 c. 0.34 d. 2.92 Actual sales Coffee Klatch is an espresso stand 2,100 cups in a Coffee downtown office building. The average3,129 Sales $ selling price of a cup of coffee is $1.49 756 Less: Variable expense s and the average variable expense per 2,373 Contribution margin cup is $0.36. The average fixed Less: Fixed expenses 1,300 expense per month isoperating income $ 1,073 Net $1,300. 2,100 Quick Check cups are sold each month on average. What is the operating leverage? Operating Contribution margin a. 2.21 leverage = Net operating income b. 0.45 $2,373 = $1,073 = 2.21 c. 0.34 d. 2.92 Quick Check At Coffee Klatch the average selling price of a cup of coffee is $1.49, the average variable expense per cup is $0.36, the average fixed expense per month is $1,300 and an average of 2,100 cups are sold each month. If sales increase by 20%, by how much should net operating income increase? a. 30.0% b. 20.0% c. 22.1% d. 44.2% Quick Check At Coffee Klatch the average selling price of a At cup of coffee is $1.49, the average variable expense per cup is $0.36, the average fixed expense per month is $1,300 and an average of 2,100 cups are sold each month. Percent increase in sales 20.0% If sales increase by 20%, by how much should net operating income increase? Degree of operating leverage 2.21 a. 30.0% b. 20.0% Percent increase in profit 44.20% c. 22.1% d. 44.2% × Verify Increase in Profit Actual sales 2,100 cups Sales $ 3,129 Less: Variable expenses 756 Contribution margin 2,373 Less: Fixed expenses 1,300 Net operating income $ 1,073 % change in sales % change in net operating income Increased sales 2,520 cups $ 3,755 907 2,848 1,300 $ 1,548 20.0% 44.2% Prestudy-8 E.D. Manufacturing, Inc. produces and sells ice skates. The current net operating income is $40,000, with a degree of operating leverage of 3. If sales increase by 10%, how much total net operating income should be expected? A) $12.000 B) $52,000 C) $44,000 D) None of the above. Structuring Sales Commissions Companies generally compensate salespeople by paying them either a commission based on sales or a salary plus a sales commission. Commissions based on sales dollars can lead to lower profits in a company. Let’s look at an example. Structuring Sales Commissions Pipeline Unlimited produces two types of surfboards, the XR7 and the Turbo. The XR7 sells for $100 and generates a contribution margin per unit of $25. The Turbo sells for $150 and earns a contribution margin per unit of $18. The sales force at Pipeline Unlimited is compensated based on sales commissions. Structuring Sales Commissions If you were on the sales force at Pipeline, you would push hard to sell the Turbo even though the XR7 earns a higher contribution margin per unit. To eliminate this type of conflict, commissions can be based on contribution margin rather than on selling price alone. Learning Objective 9 Compute the break-even point for a multiproduct company and explain the effects of shifts in the sales mix on contribution margin and the breakeven point. The Concept of Sales Mix Sales mix is the relative proportion in which a company’s products are sold. Different products have different selling prices, cost structures, and contribution margins. Let’s assume Racing Bicycle Company sells bikes and carts and that the sales mix between the two products remains the same. Multi-product break-even analysis Racing Bicycle Co. provides the following information: $265,000 = 48.2% (rounded) $550,000 Multi-product break-even analysis Break-even sales Fixed expenses = CM Ratio $170,000 = 48.2% = $352,697 Prestudy-9 Newham Corporation produces and sells two products. In the most recent month, Product R10L had sales of $28,000 and variable expenses of $6,440. Product X96N had sales of $22,000 and variable expenses of $7,560. And the fixed expenses of the entire company were $32,710. The break-even point for the entire company is closest to: A) $32,710 B) $45,431 C) $46,710 D) $17,290 Prestudy-10 Flesch Corporation produces and sells two products. In the most recent month, Product C90B had sales of $24,000 and variable expenses of $6,480. Product Y45E had sales of $29,000 and variable expenses of $11,010. And the fixed expenses of the entire company were $32,280. If the sales mix were to shift toward Product C90B with total sales remaining constant, the overall break-even point for the entire company: A) would decrease. B) would increase. C) could increase or decrease. D) would not change. Key Assumptions of CVP Analysis Selling price is constant. Costs are linear. In multiproduct companies, the sales mix is constant. In manufacturing companies, inventories do not change (units produced = units sold). ...
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