Question

Keener produces two products: regular boomerangs and premium boomerangs. Last month 1,200 units of regular and 2,400 units of premium were produced and sold. Average prices and costs per unit for the month are displayed here.


Product line fixed costs can be avoided if the product line is dropped. Corporate fixed costs can be avoided only if the firm goes out of business entirely. You may want to use a spreadsheet to perform calculations.

REQUIRED
A. Assuming the sales mix remains constant, how many units of premium will be sold each time a unit of regular is sold?
B. What are the total fixed product line costs for each product?
C. What are the total corporate fixed costs?
D. What is the overall corporate breakeven in total revenue and for each product, assuming the sales mix is the same as last month’s?
E. What is the breakeven in revenues for regular boomerangs, ignoring corporate fixed costs?
F. Why is the breakeven for regular boomerangs different when we calculate the individual product breakeven versus the combined product breakeven?
G. When managers monitor the profitability of regular boomerangs, are corporate fixed costs relevant? Explain.
H. CVP analysis assumes that the sales mix will remain constant. Explain why managers generally cannot know for certain what their sales mix will be.
I. What is the effect of uncertainty about the sales mix on the quality of the information obtained from CVPanalyses?


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  • CreatedJanuary 26, 2015
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