Question
Van Horn makes and sells several kinds of mowers, not just one. It makes Estate mowers, Suburban mowers, Zephyr mowers, and Wilcut mowers, and it
Van Horn makes and sells several kinds of mowers, not just one. It makes Estate mowers, Suburban mowers, Zephyr mowers, and Wilcut mowers, and it may well have several others. Multiproduct operations introduce 2 major kinds of difficulties into costvolume-profit analysis: 1. The contribution margin is likely to differ from product to product. 2. A common physical measuring unit may be hard to find. 1. Product Mix: Differing Contribution Margins. The break-even volume and average contribution margin in a multiproduct company is influenced by the product mix. In the next challenge, assume Van Horn has only two kinds of mowers, with the following sales volumes and contribution margins: 11 The average contribution margin is $1,500,000/50,000: $30 a unit. As we've already seen, the estimated break-even volume at this product mix is 30,000 units ($900,000 total fixed cost divided by $30). Suppose the mower market changes, however, so that 35,000 Estate mowers and 15,000 Wizard mowers can be sold. The total volume is still 50,000 mowers. Calculate the new average contribution margin $ ................. Calculate the new break-even volume: . mowers The change in product mix, reduces or increases the safety margin? .. (Yes / No) What is the new safety margin? mowers What is the income that additional sales bring in $......, on the average, instead of $30 Management may find it useful to analyze the sensitivity of its income in two directions-sensitivity to volume and sensitivity to mix. Management's willingness to make discretionary outlays will be greater if it anticipates that Wizard sales will be a high percentage of the total than if that percentage is low.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started