Usagi
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| Posted: 18 Dec 2011 at 04:18 | IP Logged
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Does anyone please help me to understand this?
I can't understand what is 'A given sales mix is maintained for all volume change'?
Bisk 52-31 26
In calculating the break-even point for a multi-product company, which of the following assumptions are commonly made when variable costing is used?
I. Sales volume equals production volume.
II. Variable costs are constant per unit
III. A given sales mix is maintained for all volume change
a. I and II
b. I and III
c. II and III
d. I,II and III
The answer is (c)
Using absorption costing, break-even point analysis assumes: (I) sales volume equals production volume (i.e. inventory levels remain constant), (II) unit variable costs are unchanged over the relevant range and (III)a given sales mix is maintained for all volume changes. Using direct costing, no fixed manufacturing costs are applied to inventory because all fixed costs are expensed when incurred.
Hence, it doesn't matter if sales volume equals production volume.
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Topic: BEC-Break even point analysis
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