Question

A shift in the sales mix from products with a high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point for the company as a whole. True or False

Answer 1

Answer: TRUE.

Explanation

• A shift in sales mix in favor of product with lower contribution margin ratio will rises the breakeven point why because it will lead to a DECREASE in “Weighted average contribution margin ratio”.

• We know that ‘Weighted average contribution margin’ Is used as a ‘denominator’ value for computing Break Even level,

• as Break Even Sales = Fixed Cost / Weighted Average contribution margin ratio.

• When denominator Decreases (without any increase in numerator Fixed Cost), the break even will decrease.