Question

Given your text's assumptions underlying multi‐product cost volume profit analysis if the price of one product falls, the effect on the unit sales required to achieve a target profit will be:

a. Only the unit sales of that product will increase.
b. Only the unit sales of all other products will increase.
c. The unit sales of all products will increase.
d. The unit sales of all products will decrease.

Answer 1

When the price of one product falls, the unit sales required to achieve a target profit will increase for all products.

Step-by-step explanation:

When the price of one product falls, the effect on the unit sales required to achieve a target profit will be that the unit sales of all products will increase. This is based on the assumptions underlying multi-product cost volume profit analysis. The reasoning behind this is that when the price of one product falls, it becomes more affordable and attractive to customers, leading to an increase in demand for all products. To achieve a target profit, the company might need to increase the unit sales of all products, taking into account the changes in prices and the contribution margin of each product.