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In: Accounting

Brancati Inc. produces and sells two products. Data concerning those products for the most recent month...

Brancati Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

Product W07C

Product B29Z

Sales…………………………

$25,000

$27,000

Variable expenses………...

$7,000

$8,600

Fixed expenses for the entire company for the month were $32,860.

Answer the following questions:

1. Determine the overall break-even point for the company. Show your work!

2. 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? Please indicate the direction of the shift, i.e., increase or decrease. Explain, but no calculation is needed.

3. What assumption is usually made concerning sales mix in CVP analysis?

Solutions

Expert Solution

1.Combined PV Ratio =Combined Sales/Combined Contribution

Combined Sales =$25000+$27000=$52000

Combined Contribition =Sales of Both the products-variable cost of both products

                                    =$52000-($7000+$8600)

                                    =$36400

Combined PV ratio =$36400/$52000

                               =.7

Break even point for the company =FC/Combined PV ratio

                                                     =$32860/.7

                                                     =46943 units

2.Since the total Sales will not change ie it will be $52000 alone for Product W07C

   also the contribution will be now more as becuase Prodcut B29Z is not in existence.

New Contribution =$52000-$7000=$45000

Contribution or the PV ratio =$45000/$52000=.87

The overall Breakeven for the company will be =$32860/.87=37770 units

That is why it has decreased becuase one product line is not take into consideration and it resulted in an increase of the PV ratio for that.

c.Assumptions in Cost-Volume-Profit (CVP) Analysis:

Sales mix is the components of Cost volume profit analysis.

CVP analysis expands the use of information provided by breakeven analysis.  

Assumptions:

1. The behavior of both costs and revenue is linear throughout the relevant range of activity.

2. Costs can be classified accurately as either fixed or variable.

3. Changes in activity are the only factors those affects costs.

4. All units produced are sold.

5. When a company sells more than one type of product, the sales mix will remain constant

ekkarill92 answered 1 year ago
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