Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which of the following is true?
A) At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.
B) The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.
C) Variable costs are $1.50 more for 2 than for 1.
D) The ratio of contribution margin to total sales always will be larger for 1 than for 2.

Question

Quizplus · Accepted Answer

At a sales volume of 25,000 units for both products, the total contribution margin is $262,500 (25,000 x $6.00 + 25,000 x $7.50). Since the total fixed costs are $300,000, operations will not be profitable at this volume. However, at a sales volume in excess of 25,000 units of Product 1 and 25,000 units of Product 2, the total contribution margin will exceed the total fixed costs, making operations profitable. Therefore, choice A is true. Choices B, C, and D are all false.

Product 1 Has a Contribution Margin of $6