{"id":219,"date":"2021-01-26T22:26:16","date_gmt":"2021-01-26T22:26:16","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=219"},"modified":"2021-08-12T16:09:42","modified_gmt":"2021-08-12T16:09:42","slug":"fixed-costs","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/fixed-costs\/","title":{"raw":"Fixed Costs","rendered":"Fixed Costs"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Understand the effects of sale mix on fixed costs<\/li>\r\n<\/ul>\r\n<\/div>\r\nHere again, are five basic questions to address as you contemplate segments with regard to the sales mix:\r\n<ol>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Does the segment have a positive contribution margin?<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">What happens to fixed costs if we eliminate a segment?<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">How will dropping a product or segment affect other areas of the business?<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">What can the company do with freed-up capacity?<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">What are the qualitative (non-financial) considerations?<\/li>\r\n<\/ol>\r\nWe looked at what would happen to the company if it dropped the HighLine model, but we did not take into account what might happen with fixed costs.\r\n<h3>Question 2: What happens to fixed costs if we eliminate a segment?<\/h3>\r\nWe have this information with regard to fixed costs per month:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Salary<\/td>\r\n<td class=\"r\">$ \u00a010,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative<\/td>\r\n<td class=\"r\">90,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Production Facility Rent<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s say we decide to allocate sales salary and SG&amp;A based on the number of units of each model sold, and production facility rent based on the number of square feet each model occupies. You have this information:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Production facility usage<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Square feet<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 5,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 4,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 1,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\">Allocation rate<\/td>\r\n<td class=\"r\">50.00%<\/td>\r\n<td class=\"r\">40.00%<\/td>\r\n<td class=\"r\">10.00%<\/td>\r\n<td class=\"r\">100.00%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nThe Midline production operation takes up half of the available space in the production facility, so we allocate half of the rent to that segment, and 4,000\/10,000 of the rent to HighLine, and so on.\r\n\r\nFor rent and sales salaries, we have decided to allocate costs based on units sold. We would choose whatever base made the most sense for a particular business\u2014and that was cost-effective to collect the data on. In this case, we can get the units sold very easily, and we can make a logical argument that fixed costs could be allocated on that basis.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Sales Salaries and SG&amp;A<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Unit sold<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 60<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 10<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 90<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Allocation rate<\/td>\r\n<td class=\"r\">66.67%<\/td>\r\n<td class=\"r\">11.11%<\/td>\r\n<td class=\"r\">22.22%<\/td>\r\n<td class=\"r\">100.00%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nAllocating based on these assumptions, and rounding to the nearest whole dollar, we get the following:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Fixed costs per month<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales Salary<\/td>\r\n<td class=\"r\">$\u00a0 6,667<\/td>\r\n<td class=\"r\">$\u00a0 1,111<\/td>\r\n<td class=\"r\">$\u00a0 2,222<\/td>\r\n<td class=\"r\">$\u00a0 10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative<\/td>\r\n<td class=\"r\">60,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<td class=\"r\">20,000<\/td>\r\n<td class=\"r\">90,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Production Facility Rent<\/td>\r\n<td class=\"r\">5,000<\/td>\r\n<td class=\"r\">4,000<\/td>\r\n<td class=\"r\">1,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 71,667<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 15,111<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 23,222<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nThis then gives us this revised CVP analysis:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>3Yachts, Inc.\r\nProduct Mix\r\nCVP Analysis (month)<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales price per unit<\/td>\r\n<td class=\"r\">$6,500<\/td>\r\n<td class=\"r\">$11,000<\/td>\r\n<td class=\"r\">$4,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable cost per unit<\/td>\r\n<td class=\"r\">$4,695<\/td>\r\n<td class=\"r\">$12,050<\/td>\r\n<td class=\"r\">$3,180<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>CM per unit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs per month<\/td>\r\n<td class=\"r\">$71,667<\/td>\r\n<td class=\"r\">$15,111<\/td>\r\n<td class=\"r\">$23,222<\/td>\r\n<td class=\"r\">$110,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales volume<\/td>\r\n<td class=\"r\">60<\/td>\r\n<td class=\"r\">10<\/td>\r\n<td class=\"r\">20<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\r\n<td class=\"r\">MidLine<\/td>\r\n<td class=\"r\">HighLine<\/td>\r\n<td class=\"r\">LowLine<\/td>\r\n<td class=\"r\">Total<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td class=\"r\">$\u00a0 390,000<\/td>\r\n<td class=\"r\">$\u00a0 110,000<\/td>\r\n<td class=\"r\">$ \u00a0 80,000<\/td>\r\n<td class=\"r\">$\u00a0 580,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable costs<\/td>\r\n<td class=\"r\">281,700<\/td>\r\n<td class=\"r\">120,500<\/td>\r\n<td class=\"r\">63,600<\/td>\r\n<td class=\"r\">465,800<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">(10,500)<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>114,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs<\/td>\r\n<td class=\"r\">71,667<\/td>\r\n<td class=\"r\">15,111<\/td>\r\n<td class=\"r\">23,222<\/td>\r\n<td class=\"r\">110,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a036,633<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$ (25,611)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (6,822)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 4,200<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nNotice that when we allocate fixed costs, although the LowLine shows a positive contribution margin, it shows an operating loss. Total contribution margin based on sales of 20 units per month does not cover that model\u2019s allocated fixed costs.\r\n\r\nLet\u2019s see what happens if we eliminate the HighLine and fixed costs do not change:\r\n\r\nWe have to reallocate rent on the production facility. For purposes of this analysis, let\u2019s assume the 4,000 square feet HighLine production space either remains vacant or the MidLine and LowLine production lines spread a bit and take up that space. In either case, we have to reassess the amount of rent we will allocate to each segment, assuming the rent can\u2019t go down just because we aren\u2019t using that space:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Production facility usage<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Square feet<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 8,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 -<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 2,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\">Allocation rate<\/td>\r\n<td class=\"r\">80.00%<\/td>\r\n<td class=\"r\">0.00%<\/td>\r\n<td class=\"r\">20.00%<\/td>\r\n<td class=\"r\">100.00%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s also, for now, assume that SG&amp;A and sales salaries remain the same but are now allocated over fewer units:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Sales Salaries and SG&amp;A<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Unit sold<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 60<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 -<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 80<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Allocation rate<\/td>\r\n<td class=\"r\">75.00%<\/td>\r\n<td class=\"r\">0.00%<\/td>\r\n<td class=\"r\">25.00%<\/td>\r\n<td class=\"r\">100.00%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nFixed costs allocated over two segments instead of three look like this:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Fixed costs per month<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales Salary<\/td>\r\n<td class=\"r\">$7,500<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$2,500<\/td>\r\n<td class=\"r\">$10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative<\/td>\r\n<td class=\"r\">67,500<\/td>\r\n<td><\/td>\r\n<td class=\"r\">22,500<\/td>\r\n<td class=\"r\">90,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Production Facility Rent<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td><\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$83,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$27,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nNotice that total fixed costs remain the same in this analysis, as does the bottom line, but the LowLine model fares even worse:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>3Yachts, Inc.\r\nProduct Mix\r\nCVP Analysis (month)<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales price per unit<\/td>\r\n<td class=\"r\">$6,500<\/td>\r\n<td class=\"r\">$11,000<\/td>\r\n<td class=\"r\">$4,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable cost per unit<\/td>\r\n<td class=\"r\">$4,695<\/td>\r\n<td class=\"r\">$12,050<\/td>\r\n<td class=\"r\">$3,180<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>CM per unit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs per month<\/td>\r\n<td class=\"r\">$83,000<\/td>\r\n<td class=\"r\">$0<\/td>\r\n<td class=\"r\">$27,000<\/td>\r\n<td class=\"r\">$110,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales volume<\/td>\r\n<td class=\"r\">60<\/td>\r\n<td class=\"r\">-<\/td>\r\n<td class=\"r\">20<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\r\n<td class=\"r\">MidLine<\/td>\r\n<td class=\"r\">HighLine<\/td>\r\n<td class=\"r\">LowLine<\/td>\r\n<td class=\"r\">Total<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td class=\"r\">$\u00a0 390,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">$ \u00a0 80,000<\/td>\r\n<td class=\"r\">$\u00a0 470,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable costs<\/td>\r\n<td class=\"r\">281,700<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">63,600<\/td>\r\n<td class=\"r\">345,300<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>124,700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs<\/td>\r\n<td class=\"r\">83,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">27,000<\/td>\r\n<td class=\"r\">110,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a025,300<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (10,600)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 14,700<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nNow let\u2019s re-run this analysis with the assumption that by eliminating the HighLine model, which was sales-intensive, we could lay off one of the two salespeople, saving the company $5,000 per month, and cut SG&amp;A by $10,000. Our fixed costs now look like this:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Fixed costs per month<\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales Salary<\/td>\r\n<td class=\"r\">$ \u00a0 3,750<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ \u00a0 1,250<\/td>\r\n<td class=\"r\">$ \u00a0 5,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Selling, General, and Administrative<\/td>\r\n<td class=\"r\">60,000<\/td>\r\n<td><\/td>\r\n<td class=\"r\">20,000<\/td>\r\n<td class=\"r\">80,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Production\u00a0Facility Rent<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td><\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 71,750<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 23,250<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 95,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nAnd our CVP analysis looks like this:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>3Yachts, Inc.\r\nProduct Mix\r\nCVP Analysis (month)<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">MidLine<\/th>\r\n<th class=\"r\" scope=\"col\">HighLine<\/th>\r\n<th class=\"r\" scope=\"col\">LowLine<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales price per unit<\/td>\r\n<td class=\"r\">$6,500<\/td>\r\n<td class=\"r\">$11,000<\/td>\r\n<td class=\"r\">$4,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable cost per unit<\/td>\r\n<td class=\"r\">$4,695<\/td>\r\n<td class=\"r\">$12,050<\/td>\r\n<td class=\"r\">$3,180<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>CM per unit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs per month<\/td>\r\n<td class=\"r\">$71,750<\/td>\r\n<td class=\"r\">$0<\/td>\r\n<td class=\"r\">$23,250<\/td>\r\n<td class=\"r\">$95,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales volume<\/td>\r\n<td class=\"r\">60<\/td>\r\n<td class=\"r\">-<\/td>\r\n<td class=\"r\">20<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\r\n<td class=\"r\">MidLine<\/td>\r\n<td class=\"r\">HighLine<\/td>\r\n<td class=\"r\">LowLine<\/td>\r\n<td class=\"r\">Total<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td class=\"r\">$\u00a0 390,000<\/td>\r\n<td class=\"r\">$0<\/td>\r\n<td class=\"r\">$ \u00a0 80,000<\/td>\r\n<td class=\"r\">$\u00a0 470,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable costs<\/td>\r\n<td class=\"r\">281,700<\/td>\r\n<td class=\"r\">$0<\/td>\r\n<td class=\"r\">63,600<\/td>\r\n<td class=\"r\">345,300<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution margin<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$0<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>124,700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs<\/td>\r\n<td class=\"r\">71,750<\/td>\r\n<td class=\"r\">$0<\/td>\r\n<td class=\"r\">23,250<\/td>\r\n<td class=\"r\">95,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating income<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a036,550<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$0<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (6,850)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a029,700<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s look at this using differential analysis:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Expected decrease in revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><span style=\"color: #ff0000;\">($110,000)<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Expected decrease in total variable costs<\/td>\r\n<td class=\"r\">$120,500<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Expected decrease in fixed costs<\/td>\r\n<td class=\"r\">$15,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Expected decrease in total costs<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">$135,500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Expected increase\/(decrease) in operating income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$25,500<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Current operating income<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$4,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Expected increase\/(decrease) in operating income<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$25,500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Projected operating income<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$29,700<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\nEliminating the HighLine and cutting costs increase the bottom line by $25,500 per month. That\u2019s $306,000 per year.\r\n\r\nHowever, we still have three questions left to answer.\r\n\r\nBefore we address those last three considerations, check your understanding of how changing the product mix affects fixed costs.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220634[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Understand the effects of sale mix on fixed costs<\/li>\n<\/ul>\n<\/div>\n<p>Here again, are five basic questions to address as you contemplate segments with regard to the sales mix:<\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Does the segment have a positive contribution margin?<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">What happens to fixed costs if we eliminate a segment?<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">How will dropping a product or segment affect other areas of the business?<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">What can the company do with freed-up capacity?<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">What are the qualitative (non-financial) considerations?<\/li>\n<\/ol>\n<p>We looked at what would happen to the company if it dropped the HighLine model, but we did not take into account what might happen with fixed costs.<\/p>\n<h3>Question 2: What happens to fixed costs if we eliminate a segment?<\/h3>\n<p>We have this information with regard to fixed costs per month:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Salary<\/td>\n<td class=\"r\">$ \u00a010,000<\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative<\/td>\n<td class=\"r\">90,000<\/td>\n<\/tr>\n<tr>\n<td>Production Facility Rent<\/td>\n<td class=\"r\">10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s say we decide to allocate sales salary and SG&amp;A based on the number of units of each model sold, and production facility rent based on the number of square feet each model occupies. You have this information:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Production facility usage<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Square feet<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 5,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 4,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 1,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 10,000<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\">Allocation rate<\/td>\n<td class=\"r\">50.00%<\/td>\n<td class=\"r\">40.00%<\/td>\n<td class=\"r\">10.00%<\/td>\n<td class=\"r\">100.00%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>The Midline production operation takes up half of the available space in the production facility, so we allocate half of the rent to that segment, and 4,000\/10,000 of the rent to HighLine, and so on.<\/p>\n<p>For rent and sales salaries, we have decided to allocate costs based on units sold. We would choose whatever base made the most sense for a particular business\u2014and that was cost-effective to collect the data on. In this case, we can get the units sold very easily, and we can make a logical argument that fixed costs could be allocated on that basis.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Sales Salaries and SG&amp;A<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Unit sold<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 60<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 10<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 90<\/td>\n<\/tr>\n<tr>\n<td>Allocation rate<\/td>\n<td class=\"r\">66.67%<\/td>\n<td class=\"r\">11.11%<\/td>\n<td class=\"r\">22.22%<\/td>\n<td class=\"r\">100.00%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Allocating based on these assumptions, and rounding to the nearest whole dollar, we get the following:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Fixed costs per month<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales Salary<\/td>\n<td class=\"r\">$\u00a0 6,667<\/td>\n<td class=\"r\">$\u00a0 1,111<\/td>\n<td class=\"r\">$\u00a0 2,222<\/td>\n<td class=\"r\">$\u00a0 10,000<\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative<\/td>\n<td class=\"r\">60,000<\/td>\n<td class=\"r\">10,000<\/td>\n<td class=\"r\">20,000<\/td>\n<td class=\"r\">90,000<\/td>\n<\/tr>\n<tr>\n<td>Production Facility Rent<\/td>\n<td class=\"r\">5,000<\/td>\n<td class=\"r\">4,000<\/td>\n<td class=\"r\">1,000<\/td>\n<td class=\"r\">10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 71,667<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 15,111<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 23,222<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>This then gives us this revised CVP analysis:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>3Yachts, Inc.<br \/>\nProduct Mix<br \/>\nCVP Analysis (month)<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales price per unit<\/td>\n<td class=\"r\">$6,500<\/td>\n<td class=\"r\">$11,000<\/td>\n<td class=\"r\">$4,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Variable cost per unit<\/td>\n<td class=\"r\">$4,695<\/td>\n<td class=\"r\">$12,050<\/td>\n<td class=\"r\">$3,180<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>CM per unit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Fixed costs per month<\/td>\n<td class=\"r\">$71,667<\/td>\n<td class=\"r\">$15,111<\/td>\n<td class=\"r\">$23,222<\/td>\n<td class=\"r\">$110,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Sales volume<\/td>\n<td class=\"r\">60<\/td>\n<td class=\"r\">10<\/td>\n<td class=\"r\">20<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\n<td class=\"r\">MidLine<\/td>\n<td class=\"r\">HighLine<\/td>\n<td class=\"r\">LowLine<\/td>\n<td class=\"r\">Total<\/td>\n<\/tr>\n<tr>\n<td>Sales<\/td>\n<td class=\"r\">$\u00a0 390,000<\/td>\n<td class=\"r\">$\u00a0 110,000<\/td>\n<td class=\"r\">$ \u00a0 80,000<\/td>\n<td class=\"r\">$\u00a0 580,000<\/td>\n<\/tr>\n<tr>\n<td>Variable costs<\/td>\n<td class=\"r\">281,700<\/td>\n<td class=\"r\">120,500<\/td>\n<td class=\"r\">63,600<\/td>\n<td class=\"r\">465,800<\/td>\n<\/tr>\n<tr>\n<td>Contribution margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">(10,500)<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>114,200<\/td>\n<\/tr>\n<tr>\n<td>Fixed costs<\/td>\n<td class=\"r\">71,667<\/td>\n<td class=\"r\">15,111<\/td>\n<td class=\"r\">23,222<\/td>\n<td class=\"r\">110,000<\/td>\n<\/tr>\n<tr>\n<td>Operating income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a036,633<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$ (25,611)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (6,822)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 4,200<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Notice that when we allocate fixed costs, although the LowLine shows a positive contribution margin, it shows an operating loss. Total contribution margin based on sales of 20 units per month does not cover that model\u2019s allocated fixed costs.<\/p>\n<p>Let\u2019s see what happens if we eliminate the HighLine and fixed costs do not change:<\/p>\n<p>We have to reallocate rent on the production facility. For purposes of this analysis, let\u2019s assume the 4,000 square feet HighLine production space either remains vacant or the MidLine and LowLine production lines spread a bit and take up that space. In either case, we have to reassess the amount of rent we will allocate to each segment, assuming the rent can\u2019t go down just because we aren\u2019t using that space:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Production facility usage<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Square feet<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 8,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 &#8211;<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 2,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 10,000<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\">Allocation rate<\/td>\n<td class=\"r\">80.00%<\/td>\n<td class=\"r\">0.00%<\/td>\n<td class=\"r\">20.00%<\/td>\n<td class=\"r\">100.00%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s also, for now, assume that SG&amp;A and sales salaries remain the same but are now allocated over fewer units:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Sales Salaries and SG&amp;A<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Unit sold<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 60<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 &#8211;<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 80<\/td>\n<\/tr>\n<tr>\n<td>Allocation rate<\/td>\n<td class=\"r\">75.00%<\/td>\n<td class=\"r\">0.00%<\/td>\n<td class=\"r\">25.00%<\/td>\n<td class=\"r\">100.00%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Fixed costs allocated over two segments instead of three look like this:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Fixed costs per month<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales Salary<\/td>\n<td class=\"r\">$7,500<\/td>\n<td><\/td>\n<td class=\"r\">$2,500<\/td>\n<td class=\"r\">$10,000<\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative<\/td>\n<td class=\"r\">67,500<\/td>\n<td><\/td>\n<td class=\"r\">22,500<\/td>\n<td class=\"r\">90,000<\/td>\n<\/tr>\n<tr>\n<td>Production Facility Rent<\/td>\n<td class=\"r\">8,000<\/td>\n<td><\/td>\n<td class=\"r\">2,000<\/td>\n<td class=\"r\">10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$83,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$27,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$110,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Notice that total fixed costs remain the same in this analysis, as does the bottom line, but the LowLine model fares even worse:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>3Yachts, Inc.<br \/>\nProduct Mix<br \/>\nCVP Analysis (month)<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales price per unit<\/td>\n<td class=\"r\">$6,500<\/td>\n<td class=\"r\">$11,000<\/td>\n<td class=\"r\">$4,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Variable cost per unit<\/td>\n<td class=\"r\">$4,695<\/td>\n<td class=\"r\">$12,050<\/td>\n<td class=\"r\">$3,180<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>CM per unit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Fixed costs per month<\/td>\n<td class=\"r\">$83,000<\/td>\n<td class=\"r\">$0<\/td>\n<td class=\"r\">$27,000<\/td>\n<td class=\"r\">$110,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Sales volume<\/td>\n<td class=\"r\">60<\/td>\n<td class=\"r\">&#8211;<\/td>\n<td class=\"r\">20<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\n<td class=\"r\">MidLine<\/td>\n<td class=\"r\">HighLine<\/td>\n<td class=\"r\">LowLine<\/td>\n<td class=\"r\">Total<\/td>\n<\/tr>\n<tr>\n<td>Sales<\/td>\n<td class=\"r\">$\u00a0 390,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">$ \u00a0 80,000<\/td>\n<td class=\"r\">$\u00a0 470,000<\/td>\n<\/tr>\n<tr>\n<td>Variable costs<\/td>\n<td class=\"r\">281,700<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">63,600<\/td>\n<td class=\"r\">345,300<\/td>\n<\/tr>\n<tr>\n<td>Contribution margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>124,700<\/td>\n<\/tr>\n<tr>\n<td>Fixed costs<\/td>\n<td class=\"r\">83,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">27,000<\/td>\n<td class=\"r\">110,000<\/td>\n<\/tr>\n<tr>\n<td>Operating income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a025,300<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (10,600)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 14,700<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Now let\u2019s re-run this analysis with the assumption that by eliminating the HighLine model, which was sales-intensive, we could lay off one of the two salespeople, saving the company $5,000 per month, and cut SG&amp;A by $10,000. Our fixed costs now look like this:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Fixed costs per month<\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales Salary<\/td>\n<td class=\"r\">$ \u00a0 3,750<\/td>\n<td><\/td>\n<td class=\"r\">$ \u00a0 1,250<\/td>\n<td class=\"r\">$ \u00a0 5,000<\/td>\n<\/tr>\n<tr>\n<td>Selling, General, and Administrative<\/td>\n<td class=\"r\">60,000<\/td>\n<td><\/td>\n<td class=\"r\">20,000<\/td>\n<td class=\"r\">80,000<\/td>\n<\/tr>\n<tr>\n<td>Production\u00a0Facility Rent<\/td>\n<td class=\"r\">8,000<\/td>\n<td><\/td>\n<td class=\"r\">2,000<\/td>\n<td class=\"r\">10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 71,750<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 23,250<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 95,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>And our CVP analysis looks like this:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>3Yachts, Inc.<br \/>\nProduct Mix<br \/>\nCVP Analysis (month)<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">MidLine<\/th>\n<th class=\"r\" scope=\"col\">HighLine<\/th>\n<th class=\"r\" scope=\"col\">LowLine<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Assumptions<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales price per unit<\/td>\n<td class=\"r\">$6,500<\/td>\n<td class=\"r\">$11,000<\/td>\n<td class=\"r\">$4,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Variable cost per unit<\/td>\n<td class=\"r\">$4,695<\/td>\n<td class=\"r\">$12,050<\/td>\n<td class=\"r\">$3,180<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>CM per unit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,805<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">($1,050)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$820<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Fixed costs per month<\/td>\n<td class=\"r\">$71,750<\/td>\n<td class=\"r\">$0<\/td>\n<td class=\"r\">$23,250<\/td>\n<td class=\"r\">$95,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Sales volume<\/td>\n<td class=\"r\">60<\/td>\n<td class=\"r\">&#8211;<\/td>\n<td class=\"r\">20<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>CVP Model Results<\/strong><\/td>\n<td class=\"r\">MidLine<\/td>\n<td class=\"r\">HighLine<\/td>\n<td class=\"r\">LowLine<\/td>\n<td class=\"r\">Total<\/td>\n<\/tr>\n<tr>\n<td>Sales<\/td>\n<td class=\"r\">$\u00a0 390,000<\/td>\n<td class=\"r\">$0<\/td>\n<td class=\"r\">$ \u00a0 80,000<\/td>\n<td class=\"r\">$\u00a0 470,000<\/td>\n<\/tr>\n<tr>\n<td>Variable costs<\/td>\n<td class=\"r\">281,700<\/td>\n<td class=\"r\">$0<\/td>\n<td class=\"r\">63,600<\/td>\n<td class=\"r\">345,300<\/td>\n<\/tr>\n<tr>\n<td>Contribution margin<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>108,300<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$0<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>16,400<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>124,700<\/td>\n<\/tr>\n<tr>\n<td>Fixed costs<\/td>\n<td class=\"r\">71,750<\/td>\n<td class=\"r\">$0<\/td>\n<td class=\"r\">23,250<\/td>\n<td class=\"r\">95,000<\/td>\n<\/tr>\n<tr>\n<td>Operating income<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a036,550<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$0<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span><span style=\"color: #ff0000;\">$\u00a0 (6,850)<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a029,700<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s look at this using differential analysis:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Expected decrease in revenue<\/td>\n<td><\/td>\n<td class=\"r\"><span style=\"color: #ff0000;\">($110,000)<\/span><\/td>\n<\/tr>\n<tr>\n<td>Expected decrease in total variable costs<\/td>\n<td class=\"r\">$120,500<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Expected decrease in fixed costs<\/td>\n<td class=\"r\">$15,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Expected decrease in total costs<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">$135,500<\/td>\n<\/tr>\n<tr>\n<td>Expected increase\/(decrease) in operating income<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$25,500<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Current operating income<\/td>\n<td><\/td>\n<td class=\"r\">$4,200<\/td>\n<\/tr>\n<tr>\n<td>Expected increase\/(decrease) in operating income<\/td>\n<td><\/td>\n<td class=\"r\">$25,500<\/td>\n<\/tr>\n<tr>\n<td>Projected operating income<\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$29,700<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<p>Eliminating the HighLine and cutting costs increase the bottom line by $25,500 per month. That\u2019s $306,000 per year.<\/p>\n<p>However, we still have three questions left to answer.<\/p>\n<p>Before we address those last three considerations, check your understanding of how changing the product mix affects fixed costs.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220634\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220634&theme=oea&iframe_resize_id=ohm220634\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-219\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Fixed Costs. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":14,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Fixed Costs\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-219","chapter","type-chapter","status-publish","hentry"],"part":35,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/219","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":10,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/219\/revisions"}],"predecessor-version":[{"id":2551,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/219\/revisions\/2551"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/35"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/219\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=219"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=219"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=219"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=219"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}