Topic: Cost-Volume-Profit Analysis General Instructions Assess each of the follo
ID: 2598145 • Letter: T
Question
Topic: Cost-Volume-Profit Analysis General Instructions Assess each of the following situations and provide the appropriate answers including the details of all calculations required for each problem.
Problem #1 Brancati Inc. produces and sells two products. Data concerning those products for the most recent month appear below:
Product W07C Sales $ 25,000
Variable expenses $ 7,000
Product B29Z Sales $ 27,000
Variable expenses $ 8,600
Fixed expenses for the entire company were $32,860.
Required: a. Determine the overall break-even point for the company in total sales dollars.
b. If the sales mix shifts toward Product W07C with no change in total sales, what will happen to the break-even point for the company?
Explanation / Answer
(a) Break Even Point in total sales dollars
Break Even Point = Fixed Expenses / Contribution Margin Ratio
Contribution Margin Ratio = (Sales - Variable Expenses) / Sales x 100
= ((25,000 + 27,000) - (7,000 + 8,600)) / 52,000 x 100
= (52,000 - 15,600) / 52,000 x 100
= 36,400 / 52,000 x 100
= 70%
Break Even Point = $ 32,860 / 70%
= $ 46,942.86
(b) If sales mix shifts toward Product W07C with no change in total sales, in that case variable cost will also increase same as proporation of Product W07C. Therefore Now Sales of Product W07C will be $ 52,000 and variable cost will be $ 14,560 (28% of Sales as per earlier ratio).
Contribution Margin Ratio = (52,000 - 14,560) / 52,000 x 100
= 37,440 / 52,000 x 100
= 72%
Revised Break Even Point = 32,860 / 72%
= $ 45,638.89