***PLEASE DO ALL*** Copy and paste the following questions into a Microsoft Word
ID: 2413623 • Letter: #
Question
***PLEASE DO ALL***
Copy and paste the following questions into a Microsoft Word document. Answer each question with a minimum of two to three (2-3) sentences. Some questions will require substantially more than that to fully respond to the prompt. Be thorough when addressing each item and make sure you answer each part of the prompt. Answer the questions in your own words. 1. What is meant by a product's contribution margin ratio? How is this ratio useful in planning business operations? 2. In all respects, Company A and Company B are identical except that Company A's costs are mostly variable; whereas Company B's costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain. 3. What is meant by the term break-even point? 4. In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company's product and operations. Explain how the lines on the graph and the break-even point would change if: a. The selling price per unit decreased? b. Fixed cost increased throughout the entire range of activity portrayed on the graph? c. Variable cost per unit increased? 5. What is meant by the margin of safety? 6. Explain how a shift in the sales mix could result in both a higher break-even point and a lower net income.Explanation / Answer
1. Product's contribution ratio refers to the contribution the product earns divided by its sales. It helps in decisions to be taken among alternatives. If two products are available as an option for the company to produce, the company would definitely produce the product having more contribution ratio.
2. There is a concept called indifference point, in this case, when the sales of the companies crosses the indifference point, the company having higher fixed cost would get more profitable, and in the case sales increases but it is less than the indifference point, the company having higher variable cost would get more profitable.
3. Break-even point refers to that level of sales, where the profit from the sale would be ZERO, that is at that level of sales, the company is able to recover just its Fixed costs in entirety.
4. a. When selling price per unit decreases?
The Sales curve, which is straight line would bend towards X-axix, the cost curve would have no effect because of this, but the break even point becomes more higher.
b. Fixed cost increased throughout the entire range of activity portrayed on the graph?
The Fixed cost line goes up by the increase in the fixed cost and the total cost curve also shifts upward. The Revenue or Sales curve have no effect, bu the Break Even Point increases.
c. Variable cost per unit increased?
There will be no change in fixed cost, the total cost curve increases and the break even point increases. Sales curve has no effect because of this.
5. Margin of safety refers to the sales level which the company makes above the break even point.
Margin of safety = Total Sales - Break Even Sales
6. When a product having less contribution ratio is sold more and eventually the sales mix alters for it, the break even point will go up and the Net Income would also reduces.
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