Question

1. Define the term break-even point.
2. What is the variable cost ratio? The contribution margin ratio? How are the two ratios related?
3. Define the term sales mix. Give an example to support your definition.
4. Cite and give credit to the author that you are citing

Answer 1

Break-even Point is that point of sales(whether expressed in units or dollars) where there is neither profit or loss.
In other words the Contribution margin is equal to Fixed cost and the Net Income is NIL.
Variable Cost ratio is the proportion of variable cost in the sales of a product.
Variable cost ratio =Total Variable Cost / Total Sales
Contribution margin ratio is the proportion of Contribution margin in the sales of a product.
In other words it is the excess of variable cost in the sales of a product
Contribution margin ratio =Total Contribution margin / Total Sales or [(Total Sales - Total Variable Cost) / Total Sales]
Sales Mix is the proportion of different products from the Total Sales made by the company
For example Audi produces 100,000 units of cars in a month.
Out of those 20,000 is Audi A4, 30,000 is Audi Q2 and 50,000 is Audi S5. Then it means that the Total Cost of Production
will be allocated to A4,Q2 and S5 in the ratio of 2:3:
So in simple terms sales mix is used to allocate costs to different products in the ratio of production