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Lincoln Corporation produces and sells two produtcs : Standard and Deluxe. The info on the two...

Lincoln Corporation produces and sells two produtcs : Standard and Deluxe. The info on the two products sold for the last month is given below. The common fixed cost is $15,000. Standard : Sales : $45,000 Variable Expenses : $36,000 Deluxe : Sales : $33,000 Variable Expenses : $16,500 Suppose total sales reveue for the coming month stays the same, but the sales (revenue) mix changes such that Deluxe increases by 20% (i.e. additional 20% to current %) and Standard decreases by 20% from the present levels. What will be the impact of this change on the break even sales revenue of Lincoln?

A. Break-even sales revenue will stay the same.

B. Break-even sales revenue will increase by $15882

C. Break-even sales revenue will decrease by $15882

D. Break-even sales revenue will increase by $ 7115

E. Break-even sales revenue will decrease by $7115

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Answer #1

Answer:

Break even the original investment in $ = [ Fixed expenses/(normal unit cost - normal variable cost/unit) ] x normal unit cost

since no unit deals are accessible, we will utilize 1 unit of each model, so Pav = $78/2

= $39, and

Cav = ($36+16.5)/2

= $26.25

OLD BE = [ $15,000/($39,000 - 26,250) ] x 39000

= $45,882

So as to ascertain the new factor cost, we will expect a lessening in VC for the standard from $36,000 to $28,800, and an expansion of 20% for the special model, from $16,000 to $19,800, which will give a Cav of ($28,800+19,800)/2 = $24,300

iI was given that deals will continue as before at $78,000, or a normal of $39,000/unit

NEW BE = [ $15,000/($39,000 - 24,300) ] x 39000

= $39,795;

when we subtract the OLD BE from the NEW BE we get - $6,086

you composed that the "appropriate response" is an abatement of $7,115, which must be accomplished if the Cav in the NEW framework is $23,910.

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