Problem III 12 points Deavila Inc. produces and sells two products. Data concern

Question

Problem III 12 points Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below: Product J3X Product XXJ Sales Variable costs $12,000 $8,800 $4,680 | $4,056 Fixed expenses for the entire company were $11,800. Required: a. What is the sales mix? b. What is the weighted average contribution margin ratio? c. Determine the overall break-even point in dollars for the company d. If the sales mix shifts toward Product J3X with no change in total sales, what will happen to the break-even point for the company? Use words and numbers to explain.

Explanation / Answer

Req A: Sales of JJX: $ 12000 Sales of XXJ: $ 8800 Total sales: 12000+8800 = 20,800 Proportion of sales in JJX: 12000 /20800 *100 = 57.69% Proportion of Sales in XXJ: 8800/20800*100 = 42.31% Sales MIX: 57.69:42.31 Req B: JJX XXJ Total Sales revenue 12000 8800 20800 Less: Variable cost 4680 4056 8736 Contribution margin 7320 4744 12064 CM ratio (Contribution/Sales*100) 61% 53.90% 58% Overall CM ratio: 58% Req C: Overall break even point : Fixed expense / CM ratio = 11800 /58% = $20,345 Req D: As the increase in proportion of Product JJX without increasing sales, i.e. proportion of sales mix in favor of JJX has been moved. The Profits of the company shall be increased as the movement is from less profitable product XXJ (i.e. 53.90%) to More profitable product JJX (I.e. contribution 61% CM ratio) The Overall CM ratio will improve and break even point in $ will go down

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