Gilpatric Corporation produces and sells two products. In the most recent month, Product Q71M had sales of $28,000 and variable expenses of $7,840. Product V04P had sales of $49,000 and variable expenses of $27,580. The fixed expenses of the entire company were $34,630. If the sales mix were to shift toward Product Q71M with total sales remaining constant, the overall break-even point for the entire company:
A)would increase.
B)could increase or decrease.
C)would not change.
D)would decrease.

Question

Quizplus · Accepted Answer

To calculate the overall break-even point for the entire company, we need to calculate the contribution margin ratio for both products. 
For Product Q71M, the contribution margin ratio is ($28,000 - $7,840) / $28,000 = 0.72 
For Product V04P, the contribution margin ratio is ($49,000 - $27,580) / $49,000 = 0.44

To calculate the overall break-even point, we can use the weighted contribution margin ratio: 
(0.72 x sales of Product Q71M + 0.44 x sales of Product V04P) / (sales of Product Q71M + sales of Product V04P) = 0.

If the sales mix were to shift toward Product Q71M, the contribution margin ratio of the overall sales mix would increase, and the break-even point would decrease. Therefore, the answer is D.

Gilpatric Corporation Produces and Sells Two Products