US CMA Part 2 · Chapter 5 · Question 7 of 15
A company sells two products. Product L has a contribution margin ratio of 25% and Product H has a contribution margin ratio of 45%. Total sales dollars and fixed costs are unchanged, but the sales mix shifts toward Product L. What happens to the company's breakeven point in sales dollars?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) It increases, because the weighted average contribution margin ratio falls
Explanation
Breakeven sales dollars = fixed costs / weighted average CM ratio. A shift toward the lower-margin product reduces the weighted average CM ratio, so more sales dollars are required to cover the same fixed costs and operating income falls at any given sales level.
More Business decision analysis: cost/volume/profit analysis MCQs
- Q9Which of the following is a standard assumption of cost/volume/profit analysis?
- Q10Thatcher Optics has a margin of safety ratio of 25%. What is its degree of operating leverage at the current sales level?
- Q11Upland Pumps sells 14,000 units at $120 each. Variable cost is $70 per unit and fixed costs are $540,000. What is operating income?
- Q12Vickers Labs can produce a product with either of two processes. Process A has fixed costs of $200,000 and variable cost of $18 per unit…
- Q13In a contribution margin income statement, what is the contribution margin?