CAF-5 · Chapter 13 · Question 7 of 10
When applying CVP analysis to a multi-product company, what crucial assumption must be made to calculate a single, overall break-even point?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The sales mix (the proportion in which the different products are sold) remains constant.
Explanation
In multi-product CVP analysis, an aggregate or weighted average contribution margin is calculated. This is only valid under the strict assumption that the proportion (mix) in which the different products are sold remains constant.
More Cost-Volume-Profit (CVP) Analysis MCQs
- Q9Solvent Limited sells Product A and Product B in a standard ratio of 2:1. The contribution margin is Rs. 10 for Product A and Rs. 20 for…
- Q10What does the "Margin of Safety" fundamentally indicate to management?
- Q1According to the study text, what is the fundamental purpose of Cost-Volume-Profit (CVP) analysis?
- Q2Which of the following formulas correctly calculates the Break-Even Point in terms of Sales Revenue?
- Q3Entity E has monthly expected sales of Rs. 128,000. If the margin of safety is given as 6.25%, what is the break-even sales revenue for…