Product 1 has a contribution margin of $6.00 per unit,and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which statement is true?
A)At a sales volume in excess of 25,000 units of Product 1 and 25,000 units of Product 2, operations will be profitable.
B)The ratio of net profit to total sales for Product 2 will be larger than the ratio of net profit to total sales for Product 1.
C)Variable costs are $1.50 more for Product 2 than for Product 1.
D)The ratio of contribution to total sales always will be larger for Product 1 than for Product 2.

Question

Quizplus · Accepted Answer

Since the contribution margin per unit for Product 2 is higher than for Product 1, it can be assumed that a higher sales volume of Product 2 will be required to cover the fixed costs and generate profit. Therefore, option A is true that a sales volume in excess of 25,000 units of both products will result in profitable operations. The other options are not necessarily true based on the information provided.

Product 1 Has a Contribution Margin of $6