How is the “bag” assumption used in CVP analysis for a multiproduct firm? What additional assumption must be made in multiproduct CVP analysis that doesn’t pertain to a single-product CVP situation? A multiproduct company has a sales mix of nine widgees to three squigees. Widgees have a contribution margin ratio of 45 percent, and squigees have a contribution margin ratio of 80 percent. If the sales mix changes to six widgees to six squigees, will the company have a higher or lower weighted average contribution margin ratio and a higher or lower break-even point (in sales dollars)? Explain the rationale for your answer. Define and explain the relationship between margin of safety and degree of operating leverage.
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