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Chapter 21: Q-21-13 (page 1167)

Explain how the sales mix can affect the profitability of a company.

Short Answer

Expert verified

Answer

A sales mix is the combination of all the products sold and services rendered by the company.

Step by step solution

01

Sales mix

A sales mix is the combination of all the products sold and services rendered by the company. All products and services are considered separate businesses and individual profit is calculated for all the products and services.

02

how sales mix can affect the profitability of a company.

The sales mix affects the profitability of a company because the different product has a different contribution margin per unit. A varying sales mix produces different profits for the company. For example, if the sales mix contains a larger portion of the product generating a low contribution margin per unit then the total profitability of the company comes down and vice versa.

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Most popular questions from this chapter

Explain how increasing production can increase gross profit when using absorption costing.

Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.

Question: Using variable costing, service company

Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee’s territory as a business segment. The company incurs variable costs that include the employees’ wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:

Requirements

1. Calculate the contribution margin ratio for each business segment.

2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?

Question: Preparing variable costing income statements, production less than sales

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing and $9,000 selling and administrative).

Requirements

  1. Prepare the May income statement using variable costing.
  2. Determine the balance in the Finished Goods Inventory as of May 31.

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why
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