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How can CVP analysis be used by companies with multiple products?

Short Answer

Expert verified

The combination of products used that sums up total sales is known as the sales mix.

Step by step solution

01

Meaning of Sales mix

The sales mix refers to the assortment of products utilized to calculate total sales. To calculate the CVP for sales mix same formulas can be used with multiple products.

02

How can companies with multiple products use CVP analysis.

Companies can use the weighted-average contribution margin of all the company’s products to calculate CVP analysis. In addition, it helps the company to minimize the labor, and time and they also get to know which product would be the most profitable

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Most popular questions from this chapter

England Productions performs London shows. The average show sells 1,300 tickets at\(60 per ticket. There are 175 shows per year. No additional shows can be held as thetheater is also used by other production companies. The average show has a cast of65, each earning a net average of \)340 per show. The cast is paid after each show. Theother variable cost is a program-printing cost of \(8 per guest. Annual fixed costs total\)728,000.

Requirements

1. Compute revenue and variable costs for each show.

2. Use the equation approach to compute the number of shows England Productionsmust perform each year to break even.

3. Use the contribution margin ratio approach to compute the number of showsneeded each year to earn a profit of $5,687,500. Is this profit goal realistic? Giveyour reasoning.

4. Prepare England Productions’s contribution margin income statement for175 shows performed in 2018. Report only two categories of costs: variableand fixed.

How does a contribution margin income statement differ from a traditional income statement?

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.

S20-17 Calculating breakeven point for two products

For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket.

Requirements

1. Compute the new weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

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