A. What is the formula for breakeven units? b. How is knowledge of the contribution margin of a product helpful? In your answer, explain two possible benefits of computing the contribution margin of a product
a. Breakeven (units) = Fixed Costs รท Contribution Margin per Unit
b. A product line's contribution margin represents its net contribution to paying off fixed costs and providing a profit. Thus, knowledge of a product's contribution margin is helpful in evaluating its profitability. Benefits of computing the contribution margin includes the following: contribution margins may be utilized in assessing the feasibility of a new product line. A product's contribution margin may also be utilized in profit planning and marketing. A firm wishing to maximize profit should try to shift the sales mix toward those products with higher contribution margins.
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