Versatile Corporation produces and sells two products. in the most recent month,

Question

Versatile Corporation produces and sells two products. in the most recent month, product Tt99 had a sales of $60,000 and variable expenses of $30,000. Product SS88 had sales of $140,000 and variable expenses of $98,000. The fixed expenses of the entire company were $45,000. if total sales revenue and total fixed costs for the coming month stay the same, but the sales mix defined as sales revenue of a single product in total sales revenue, of the TT99 increases from 30% to 70% and, as the result, the sales mix of SS88 decreases from 70% to 30%, determine the change in break-even sales revenue. A) Break-even sales revenue will stay the same. B) Break-even sale revenue will increase by $22,727. C)Break-even sale revenue will decrease by $22,727. D)Break-even sale revenue will increase by $7784. E)Break-even sales revenue will decrease by $7784. Answer C is the correct one. could you provide steps how to get the answer thanks.

Explanation / Answer

Contribution from Tt99 = 60000- 30000 =30000

CM ratio = 30000/60000= .50 or 50%

contribution from SS88 = 140000-98000 = 42000

CM ratio = 42000 / 140000 = .30 or 30%

Weightd average contribution = (50* .30 )+(30 * .70) = 15+ 21= 36%

BEP ($) =FIxed cost /Weighted average

                = 45000 / .36 = $ 125000

Now when sale mix is changed ,New weighted average contribution = (50*.70)+(30*.30)

                                                                                   = 35+ 9

                                                                                    = 44 %

BEP = 45000/..44 = 102272.73

BEP is decresed by 125000 -102272.73 = 22727

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