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In: Accounting

Explain the term sales mix and its effects on break-even sales. What is Margin of Safety...

Explain the term sales mix and its effects on break-even sales.

What is Margin of Safety and how does it get used in CVP Analysis?

How does a company determine sales mix when a company has limited resources?

How does operating leverage affect profitability?

Solutions

Expert Solution

sales mix it is the proporation of various products that are sold.

for a company with many num,ber of product category the sales mix helps in determining the ration or proportion of the products that are to be concentrated.

a business with low sales volume may earn high profit margins and a business with high sales volume may earn less profits if the proportion of high profitable products are more.

sales mix has a greater impact on break even sales because the product with highr profit margins may not be reliable because of so many external factors one of whihc may be customer demand.

Margin of safety is the difference of the current market sales less break even point sales.

it informs the the business the loss that it may incur in change of sales. MOS helsps in reducing expenses related to less productive and defective sales.

Marging of sales is arrived by using the budgeted sales with break even sales.

the higher the percentage the betterr the company profitability the lower the rate the riskier the business.

Majorily a company with limited resources may prefer the sales mix dependeing on the available resources by calculating the contribution margin per unit of the available resources in which way company can identify the appropriate sales mix

Operating leverage is higher when the company's fixed costs are more which is a sign of business risk which in turn affects the profitability.

under such situations when production fixed costs are more the percentage change of profit is more than that of the percentage change in sales.

Operating leverage reaps large benefits in good times when sales grow, but it significantly amplifies losses in bad times, resulting in a large business risk for a company

ekkarill92 answered 1 year ago
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