1.What will be the impact on a company's profit if the sales mix shifts between low...

1.What will be the impact on a company's profit if the sales mix shifts between low margin and high margin products? Explain different possible scenarios.

2.When does absorption costing net operating income and variable costing net operating income require reconciliation? Explain different situations with appropriate reasons behind such changes.

Expert Solution

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Answer 1

The company is having profits from the wide range of products by selling products. In this case, the company is having two products, where one is giving low margin or profit and the other one is giving a high margin of profits. If the current sales mix is shifted from high sales of high margin product and low sales of low margin product will impact the company and will decrease the company’s profit.

Below is the detailed explanation with an example.

For example

A company is producing two products. Contribution Margin per unit of Product 1 is $10 per unit and the Product 2 is $5 per unit. Suppose that units sold are 10,000 and 5,000 respectively for both products. Now, if Sales mix is shifted between low margin and high margin products, then profit here will decrease, because high margin will have less units of units sold and low margin will have high units of units sold. Profit will be decreased by $ 25,000 (10,000*10)+(5,000*5) – (5,000*10)+(10,000*5).

ekkarill92 answered 2 years ago

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