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UNIT 2
==[|Cost Behavior and Cost-Volume-Profit Analysis] == ===[|Determine the break-even point in both units and sales dollars] === [|Objective 4] Core Resources
 * [|Unit 2 Overview]
 * [|Objective 1]
 * [|Objective 2]
 * [|Objective 3]
 * [|Objective 4]
 * [|Objective 5]
 * [|Unit 2 Review]
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Note to Students
 Read this section from Managerial Accounting to see how you calculate the break-even point in units and sales when a company offers multiple products and services.

Cost-Volume-Profit Analysis for Multiple-Product and Service Companies
from // Managerial Accounting // // - Chapter 6 //

Publisher: Flat World Knowledge
0 0

Learning Objective

 * 1) Perform cost-volume-profit analysis for multiple-product and service companies.

 // Question: Although the previous section illustrated cost-volume-profit (CVP) analysis for companies with a single product easily measured in units, most companies have more than one product or perhaps offer services not easily measured in units. Suppose you are the manager of a company called Kayaks-For-Fun that produces two kayak models, River and Sea. // What information is needed to calculate the break-even point for this company? Answer: The following information is required to find the break-even point:  
 * Monthly fixed costs total $24,000.
 * The River model represents 60 percent of total sales volume and the Sea model accounts for 40 percent of total sales volume.
 * The unit selling price and variable cost information for the two products follow:

Finding the Break-Even Point and Target Profit in Units for Multiple-Product Companies
 // Question: // Given the information provided for Kayaks-For-Fun, how will the company calculate the break-even point? Answer: First, we must expand the profit equation presented earlier to include multiple products. The following terms are used once again. However, subscript // r // identifies the River model, and subscript // s // identifies the Sea model (e.g., Sr stands for the River model’s selling price per unit). CM is new to this section and represents the contribution margin.

Key Equation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> S = Selling price // per unit //  V = Variable cost // per unit //  F = // Total // fixed costs  Q = Quantity of units produced and sold  CM = Contribution margin Thus ProfitProfit == Total sales − Total variable costs − Total fixed costs [( Sr × Qr )+( Ss × Qs )]−[( Vr × Qr )+( Vs × Qs )]− F Without going through a detailed derivation, this equation can be restated in a simplified manner for Kayaks-For-Fun, as follows: ProfitProfit =( Unit CM for River × Quantity of River )+( Unit CM for Sea × Quantity of Sea )− F = $4 00 Qr + $15 0 Qs − $24, 000 One manager at Kayaks-For-Fun believes the break-even point should be 60 units in total, and another manager believes the break-even point should be 160 units in total. Which manager is correct? The answer is both might be correct. If only the River kayak is produced and sold, 60 units is the break-even point. If only the Sea kayak is produced and sold, 160 units is the break-even point. There actually are many different break-even points, because the profit equation has two unknown variables, Qr and Qs. Further evidence of multiple break-even points is provided as follows (allow for rounding to the nearest unit), and shown graphically in [|Figure 6.3, “Multiple Break-Even Points for Kayaks-For-Fun”] : Profit ($0) = ($400 × **30** units of River) + ($150 × **80** units of Sea) − $24,000 Profit ($0) = ($400 × **35** units of River) + ($150 × **67** units of Sea) − $24,000  Profit ($0) = ($400 × **40** units of River) + ($150 × **53** units of Sea) − $24,000
 * Figure 6.3. Multiple Break-Even Points for Kayaks-For-Fun**


 * [[image:http://images.flatworldknowledge.com/heisinger/heisinger-fig06_003.jpg width="475" caption="Multiple Break-Even Points for Kayaks-For-Fun"]] ||

Break-Even Point in Units and the Weighted Average Contribution Margin per Unit
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> // Question: Because most companies sell multiple products that have different selling prices and different variable costs, the break-even or target profit point depends on the sales mix. // What is the sales mix, and how is it used to calculate the break-even point? Answer: The // sales mix // is the proportion of one product’s sales to total sales. In the case of Kayaks-For-Fun, the River model accounts for 60 percent of total unit sales and the Sea model accounts for 40 percent of total unit sales. In calculating the break-even point for Kayaks-For-Fun, we must assume the sales mix for the River and Sea models will remain at 60 percent and 40 percent, respectively, at all different sales levels. The formula used to solve for the break-even point in units for multiple-product companies is similar to the one used for a single-product company, with one change. Instead of using the contribution margin per unit in the denominator, multiple-product companies use a // weighted average contribution margin per unit //. The formula to find the break-even point in units is as follows.

Key Equation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> Total fixed costs + Target profitWeighted average contribution margin per unit When a company assumes a constant sales mix, a // weighted average contribution margin per unit // can be calculated by multiplying each product’s unit contribution margin by its proportion of total sales. The resulting weighted unit contribution margins for all products are then added together. At Kayaks-For-Fun, the weighted average contribution margin per unit of $300 is $300 = ($400 × 60 percent) + ($150 × 40 percent) We can now determine the break-even point in units by using the following formula: Break-even point in unitsBreak-even point in units = Total fixed costs + Target profitWeighted average contribution margin per unit = $24, 000 + $0 $3 00 = 8 0 total kayaks Kayaks-For-Fun must sell 48 River models (= 60 percent × 80 units) and 32 Sea models (= 40 percent × 80 units) to break even. Again, this assumes the sales mix remains the same at different levels of sales volume.

Target Profit in Units
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> // Question: We now know how to calculate the break-even point in units for a company with multiple products. // How do we extend this process to find the target profit in units for a company with multiple products? Answer: Finding the target profit in units for a company with multiple products is similar to finding the break-even point in units except that profit is no longer set to zero. Instead, profit is set to the target profit the company would like to achieve.

Key Equation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> Target profit in units = Total fixed costs + Target profitWeighted average contribution margin per unit For example, assume Kayaks-For-Fun would like to know how many units it must sell to make a monthly profit of $96,000. Simply set the target profit to $96,000 and run the calculation: Target profit in unitsTarget profit in units = Total fixed costs + Target profitWeighted average contribution margin per unit = $24, 000 + $96, 000 $3 00 = 4 00 total kayaks Kayaks-For-Fun must sell 240 River models (= 60 percent × 400) and 160 Sea models (= 40 percent × 400) to make a profit of $96,000.

Review Problem 6.2
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">International Printer Machines (IPM) builds three computer printer models: Inkjet, Laser, and Color Laser. Information for these three products is as follows: 
 * || **Inkjet** || **Laser** || **Color Laser** || **Total** ||
 * Selling price per unit || $250 || $400 || $1,600 ||  ||
 * Variable cost per unit || $100 || $150 || $ 800 ||  ||
 * Expected unit sales (annual) || 12,000 || 6,000 || 2,000 || 20,000 ||
 * Sales mix || 60 percent || 30 percent || 10 percent || 100 percent ||

<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> Total annual fixed costs are $5,000,000. Assume the sales mix remains the same at all levels of sales. 
 * 1)
 * 2) How many printers in total must be sold to break even?
 * 3) How many units of each printer must be sold to break even?


 * 1)
 * 2) How many printers in total must be sold to earn an annual profit of $1,000,000?
 * 3) How many units of each printer must be sold to earn an annual profit of $1,000,000?

Solution to Review Problem 6.2 Note: All solutions are rounded.  >>  Total fixed costs + Target profitWeighted average contribution margin per unit    $5, 000,000 + $0 ( $15 0 × 0. 6 0 )+( $25 0 × 0. 3 0 )+( $8 00 × 0. 1 0 )= $5, 000,000 $245 = 2 0 ,4 0 8 total units >>
 * 1)
 * 2)  IPM must sell 20,408 printers to break even:
 * 1)  As calculated previously, 20,408 printers must be sold to break even. Using the sales mix provided, the following number of units of each printer must be sold to break even:
 * Inkjet: 12,245 units = 2 0 ,4 0 8 × 0. 6 0
 * Laser: 6,122 units = 2 0 ,4 0 8 × 0. 3 0
 * Color laser: 2, 0 41 units = 2 0 ,4 0 8 × 0. 1 0

>>  Total fixed costs + Target profitWeighted average contribution margin per unit    $5, 000,000 + $1, 000,000 ( $15 0 × 0. 6 0 )+( $25 0 × 0. 3 0 )+( $8 00 × 0. 1 0 )= $6, 000,000 $245 = 24,49 0 total units >>
 * 1)
 * 2)  IPM must sell 24,490 printers to earn $1,000,000 in profit:
 * 1)  As calculated previously, 24,490 printers must be sold to earn $1,000,000 in profit. Using the sales mix provided, the following number of units for each printer must be sold to earn $1,000,000 in profit:
 * Inkjet:14,694 units = 24,49 0 × 0. 6 0
 * Laser:7,347 units = 24,49 0 × 0. 3 0
 * Color laser:2,449 units = 24,49 0 × 0. 1 0

 

Finding the Break-Even Point and Target Profit in Sales Dollars for Multiple-Product and Service Companies
A restaurant like **Applebee’s**, which serves chicken, steak, seafood, appetizers, and beverages, would find it difficult to measure a “unit” of product. Such companies need a different approach to finding the break-even point. [|Figure 6.4, “Type of Good or Service Determines Whether to Calculate Break-Even Point and Target Profit Points in Units or Sales Dollars”] illustrates this point by contrasting a company that has similar products easily measured in units (kayaks) with a company that has unique products (meals at a restaurant) not easily measured in units.  **Figure 6.4. Type of Good or Service Determines Whether to Calculate Break-Even Point and Target Profit Points in Units or Sales Dollars**


 * [[image:http://images.flatworldknowledge.com/heisinger/heisinger-fig06_004.jpg width="475" caption="Type of Good or Service Determines Whether to Calculate Break-Even Point and Target Profit Points in Units or Sales Dollars"]] ||

Break-Even Point in Sales Dollars and the Weighted Average Contribution Margin Ratio
// Question: // For companies that have unique products not easily measured in units, how do we find the break-even point? Answer: Rather than measuring the break-even point in units, a more practical approach for these types of companies is to find the break-even point in sales dollars. We can use the formula that follows to find the break-even point in sales dollars for organizations with multiple products or services. Note that this formula is similar to the one used to find the break-even point in sales dollars for an organization with one product, except that the contribution margin ratio now becomes the // weighted average // contribution margin ratio.

Key Equation
Break-even point in sales dollars = Total fixed costs + Target profitWeighted average contribution margin ratio For example, suppose Amy’s Accounting Service has three departments—tax, audit, and consulting—that provide services to the company’s clients. [|Figure 6.5, “Income Statement for Amy’s Accounting Service”] shows the company’s income statement for the year. Amy, the owner, would like to know what sales are required to break even. Note that fixed costs are known in total, but Amy does not allocate fixed costs to each department. 
 * Figure 6.5. Income Statement for Amy’s Accounting Service**


 * [[image:http://images.flatworldknowledge.com/heisinger/heisinger-fig06_005.jpg width="475" caption="Income Statement for Amy’s Accounting Service"]] ||

The // contribution margin ratio // differs for each department: 
 * Tax || 70 percent (= $70,000 ÷ $100,000) ||
 * Audit || 20 percent (= $30,000 ÷ $150,000) ||
 * Consulting || 50 percent (= $125,000 ÷ $250,000) ||

// Question: We have the contribution margin ratio for each department, but we need it for the company as a whole. // How do we find the contribution margin ratio for all of the departments in the company combined? Answer: The contribution margin ratio for the company as a whole is the // weighted average contribution margin ratio //. We calculate it by dividing the // total // contribution margin by // total // sales. For Amy’s Accounting Service, the weighted average contribution margin ratio is 45 percent (= $225,000 ÷ $500,000). For every dollar increase in sales, the company will generate an additional 45 cents ($0.45) in profit. This assumes that the sales mix remains the same at all levels of sales. (The sales mix here is measured in sales dollars for each department as a proportion of total sales dollars.) Now that you know the weighted average contribution margin ratio for Amy’s Accounting Service, it is possible to calculate the break-even point in sales dollars: Break-even point in sales dollarsBreak-even point in sales dollars = Total fixed costs + Target profitWeighted average contribution margin ratio = $12 0,000 + $00. 45 = $266,667 ( rounded ) Amy’s Accounting Service must achieve $266,667 in sales to break even.[ [|6] ]

Target Profit in Sales Dollars
// Question: // How do we find the target profit in sales dollars for companies with products not easily measured in units? Answer: Finding the target profit in sales dollars for a company with multiple products or services is similar to finding the break-even point in sales dollars except that profit is no longer set to zero. Instead, profit is set to the target profit the company would like to achieve.

Key Equation
Target profit in sales dollars = Total fixed costs + Target profitWeighted average contribution margin ratio For example, assume Amy’s Accounting Service would like to know sales dollars required to make $250,000 in annual profit. Simply set the target profit to $250,000 and run the calculation: Target profit in sales dollarsTarget profit in sales dollars = Total fixed costs + Target profitWeighted average contribution margin ratio = $12 0,000 + $25 0,0000. 45 = $822,222 ( rounded ) Amy’s Accounting Service must achieve $822,222 in sales to earn $250,000 in profit.  

Important Assumptions
// Question: Several assumptions are required to perform break-even and target profit calculations for companies with multiple products or services. // What are these important assumptions? Answer: These assumptions are as follows: 
 * Costs can be separated into fixed and variable components.
 * Contribution margin ratio remains constant for each product, segment, or department.
 * Sales mix remains constant with changes in total sales.

These assumptions simplify the CVP model and enable accountants to perform CVP analysis quickly and easily. However, these assumptions may not be realistic, particularly if significant changes are made to the organization’s operations. When performing CVP analysis, it is important to consider the accuracy of these simplifying assumptions. It is always possible to design a more accurate and complex CVP model. But the benefits of obtaining more accurate data from a complex CVP model must outweigh the costs of developing such a model.  

Margin of Safety
// Question: Managers often like to know how close expected sales are to the break-even point. As defined earlier, the excess of projected sales over the break-even point is called the margin of safety. // How is the margin of safety calculated for multiple-product and service organizations? Answer: Let’s return to Amy’s Accounting Service and assume that Amy expects annual sales of $822,222, which results in expected profit of $250,000. Given a break-even point of $266,667, the margin of safety in sales dollars is calculated as follows: Margin of safety$555,555 = Projected sales − Break-even sales = $822,222 − $266,667 Thus sales revenue can drop by $555,555 per year before the company begins to incur a loss.

Key Takeaways
 >  Total fixed costs + Target profitWeighted average contribution margin per unit >  Total fixed costs + Target profitWeighted Average contribution margin ratio
 * The key formula used to calculate the break-even or target profit point **in units** for a company with multiple products is as follows. Simply set the target profit to $0 for break-even calculations, or to the appropriate profit dollar amount for target profit calculations.
 * The formula used to find the break-even point or target profit in **sales dollars** for companies with multiple products or service is as follows. Simply set the “Target Profit” to $0 for break-even calculations, or to the appropriate profit dollar amount for target profit calculations:

Review Problem 6.3
Ott Landscape Incorporated provides landscape maintenance services for three types of clients: commercial, residential, and sports fields. Financial projections for this coming year for the three segments are as follows:


 * [[image:http://images.flatworldknowledge.com/heisinger/heisinger-fig06_x008.jpg width="475"]] ||

Assume the sales mix remains the same at all levels of sales. 
 * 1) How much must Ott Landscape have in total sales dollars to break even?
 * 2) How much must Ott Landscape have in total sales dollars to earn an annual profit of $1,500,000?
 * 3) What is the margin of safety, assuming projected sales are $5,000,000 as shown previously?

Solution to Review Problem 6.3  >  Total fixed costs + Target profitWeighted average contribution margin ratio *= $2 00,000 + $00. 2 0 = $1, 000,000 in sales  *Weighted average contribution margin ratio = $1,000,000 ÷ $5,000,000 = 20 percent or 0.20. >  Total fixed costs + Target profitWeighted average contribution margin ratio = $2 00,000 + $1,5 00,0000. 2 0 = $8,5 00,000 in sales >  Margin of safety$4, 000,000 in sales = Projected sales − Break-even sales = $5, 000,000 − $1, 000,000 <span style="background-color: rgba(255,255,255,0); display: block; text-align: center; text-decoration: none; vertical-align: baseline;">[|« Back to resources] 0 **<span style="background-color: rgba(255,255,255,0);">Was this resource helpful? ** <span style="background-color: rgba(255,255,255,0); text-align: center; text-decoration: none; vertical-align: baseline;">[|Continue to the next Resource]
 * 1)  Sales of $1,000,000 are required to break even:
 * 1)  Sales of $8,500,000 are required to make a profit of $1,500,000:
 * 1)  The margin of safety is $4,000,000 in sales:

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Links and Discussions
<span style="background-color: rgba(255,255,255,0);"> <span style="background-color: rgba(255,255,255,0); color: #000000;"> [|Create account] or [|Sign in] to add comments. <span style="background-color: rgba(255,255,255,0); color: #000000; display: block; vertical-align: baseline;">quiz > Contribution Margin - Variable Costs = Net Income > <span style="background-color: rgba(255,255,255,0); color: #000000;">Your Answer Net Sales - Cost of Goods Sold = Gross Profit > Total Sales - Total Variable Costs = Contribution Margin > <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct Answer Total Fixed Costs - Total Variable Costs = Contribution Margin
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Which statement about variable costing is most correct?

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Total Sales - Total Variable Costs = Contribution Margin <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Big Box Store employs additional workers during holiday seasons. Their policy is to add an additional manager every time 10 new workers are hired. Hiring the additional manager is best described as a **// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //__**

Step cost <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct! Opportunity cost

Mixed cost

Variable cost

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> A step cost increases in fixed amounts called "steps" but not proportionally to volume since managers are generally salaried. Adding an additional manager for every 10 workers is an example of a step cost. If we plot the cost on a graph we will see total managerial costs rising in steps as additional managers are added.

>> The point at which total revenue equals total costs >> <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;"> Correct! The point is the same for every company in the same industry >> The point where sales revenues equal variable costs
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">The point where the company's profits are maximized

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">At the break-even point, total revenue equals total costs and net income is zero. >> [|Flag Question] >> Step cost >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct! Opportunity cost >> Mixed cost >> Variable cost
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Big Box Store employs additional workers during holiday seasons. Their policy is to add an additional manager every time 10 new workers are hired. Hiring the additional manager is best described as a **// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //// _ //__**

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">A step cost increases in fixed amounts called "steps" but not proportionally to volume since managers are generally salaried. Adding an additional manager for every 10 workers is an example of a step cost. If we plot the cost on a graph we will see total managerial costs rising in steps as additional managers are added. >> [|Flag Question] <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">What is Northern Co.'s break-even point in units (rounded to nearest whole number)?
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">The Northern Co. manufactures office chairs. The following information is for June:
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Selling price per chair $150
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Variable costs per chair $80
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Total fixed costs $100,000

1,429 chairs >> 1,635 chairs >> 1,286 chairs >> 1,526 chairs >> [|Flag Question] >> Only variable costing may be used for financial reporting. Absorption costing should only be used for managerial reports >> Absorption costing is required by GAAP for financial reporting >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct Answer In absorption costing all period costs are included as product costs >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Your Answer Either absorption or variable costing may be used for financial reporting as long as the method used is consistent between years
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Which statement about absorption costing is correct?

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Absorption costing is required by GAAP for financial reporting. Variable costing may only be used internally for management reports. >> [|Flag Question] <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">If the company sells a total of 1,500 chairs in June, what is the margin of safety (rounded to the nearest whole unit)? >> 100 chairs >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Your Answer 71 chairs >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct Answer 214 chairs >> 0 chairs
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">The Northern Co. manufactures office chairs. The following information is for June:
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Selling price per chair $150
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Variable costs per chair $80
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Total fixed costs $100,000

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
Margin of Safety is the difference between the break-even point and actual units sold. Contribution margin = $150 - $80 = $70. Break-even = $100,000 / $70 = 1,429 chairs. Margin of Safety = 1,500 - 1,429 = 71 chairs. <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">How many chairs does the company need to sell to achieve a target income of $25,000 for June. (rounded to nearest whole units)? >> 1,786 chairs >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct! 1,869 chairs >> 1,658 chairs >> 1,428 chairs >>
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">The Northern Co. manufactures office chairs. The following information is for June:
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Selling price per chair $150
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Variable costs per chair $80
 * <span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Total fixed costs $100,000

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Contribution margin = $150 - $80 = $70 per chair. Units needed to achieve a $25,000 target income = ($100,000 + $25,000) / $70 = 1,786 chairs (rounded) >> [|Flag Question] >> Total Fixed Costs - Total Variable Costs = Contribution Margin >> Contribution Margin - Variable Costs = Net Income >> Net Sales - Cost of Goods Sold = Gross Profit >> Total Sales - Total Variable Costs = Contribution Margin >> <span style="background-color: rgba(255,255,255,0); color: #000000;">Correct!
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Which statement about variable costing is most correct?

<span style="background-color: rgba(255,255,255,0); vertical-align: baseline;">Explanation
<span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Total Sales - Total Variable Costs = Contribution Margin >> [|Flag Question] >> A mixed cost combines direct costs and indirect costs >> Total mixed costs stay the same over a relevant range >> A mixed cost combines selling expenses with production costs >> A mixed cost has a fixed cost component and a variable cost component > [|Flag Question]
 * 1) <span style="background-color: rgba(255,255,255,0); display: block; vertical-align: baseline;">Which statement best describes a mixed cost?

<span style="background-color: rgba(255,255,255,0);">Explanation
<span style="background-color: rgba(255,255,255,0);">Mixed costs have a fixed cost component and a variable cost component. They change as sales change, but not in direct proportion to the change in sales. > [|Flag Question] >  Fixed costs per unit remain the same as sales increase >   <span style="background-color: rgba(255,255,255,0);">Your Answer     Total fixed costs decrease as sales increase >  Fixed costs per unit increase as total sales increase >  Total fixed costs remain the same over a relevant range >   <span style="background-color: rgba(255,255,255,0);">Correct Answer
 * 1)    <span style="background-color: rgba(255,255,255,0);">Which statement best describes fixed cost behavior?

<span style="background-color: rgba(255,255,255,0);">Explanation
<span style="background-color: rgba(255,255,255,0);">Total fixed costs remain the same over a relevant range. Unit fixed costs decrease as sales increase. Unit fixed costs increase as sales decrease. > [|Flag Question] >  Variable costs per unit remain the same over a relevant range >   <span style="background-color: rgba(255,255,255,0);">Correct! Total variable costs decrease as sales increase >  Variable costs per unit increase as sales increase >  Total variable costs remain the same over a relevant range
 * 1)    <span style="background-color: rgba(255,255,255,0);">Which statement best describes variable cost behavior?

<span style="background-color: rgba(255,255,255,0);">Explanation
Variable costs per unit remain the same over a relevant range. Total variable costs increase proportionally as sales increase. Total variable costs decrease proportionally as sales decrease.