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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

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month.

10. Calculate the required sales in units to earn the target profit using the equation method.

11. Calculate the required sales in units to earn the target profit using the contribution margin method.

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.

13. Calculate the required sales in units to break even using the contribution margin method.

Question: Determining total variable cost

For each variable cost per unit listed below, determine the total variable cost when units produced and sold are 25, 50, and 100 units.

Direct materials $ 40

Direct labor 80

Variable overhead 9

Sales commission 12

What are the three ways contribution margin can be ex

Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are \(156,000.

Requirements

1. What is the number of units that must be sold each month to reach the breakeven point?

2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars?

3. If Piedmont Computer Company desires to make a profit of \)15,000 per month, how many units must be sold?

4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to \(90,000 per month, but the weighted-average variable cost per unit will increase to \)525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

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