Question

Viatale Inc is a small company that sells French Souvenirs: Eiffel Tower Replicas and Antiques. The company’s June sales and expenses are provided below: Eiffel Tower Antiques Sales $20,000 $80,000 Variable Costs $15,000 $40,000 No. of Souvenirs sold 200 1000 Sales Mix 20% 80% Monthly Fixed costs are $37,000. Required: a. Compute the contribution margin per unit for each product. b. Compute the weighted average contribution margin per unit. c. Compute the break-even point in units for the company. d. Compute the contribution margin ratio of each product. e. Compute the weighted average contribution ratio. f. Compute the break-even point in dollars for the company.

Answer 1

Answer a.

Replicas:

Contribution Margin = Sales - Variable Costs
Contribution Margin = $20,000 - $15,000
Contribution Margin = $5,000

Contribution Margin per unit = Contribution Margin / Number of units sold
Contribution Margin per unit = $5,000 / 200
Contribution Margin per unit = $25.00

Antiques:

Contribution Margin = Sales - Variable Costs
Contribution Margin = $80,000 - $40,000
Contribution Margin = $40,000

Contribution Margin per unit = Contribution Margin / Number of units sold
Contribution Margin per unit = $40,000 / 1,000
Contribution Margin per unit = $40.00

Answer b.

Weighted Average Contribution Margin per unit = 20% * $25.00 + 80% * $40.00
Weighted Average Contribution Margin per unit = $37.00

Answer c.

Breakeven Point in units = Fixed Costs / Weighted Average Contribution Margin per unit
Breakeven Point in units = $37,000 / $37.00
Breakeven Point in units = 1,000

Answer d.

Replicas:

Contribution Margin Ratio = (Sales - Variable Costs) / Sales
Contribution Margin Ratio = ($20,000 - $15,000) / $20,000
Contribution Margin Ratio = 25%

Antiques:

Contribution Margin Ratio = (Sales - Variable Costs) / Sales
Contribution Margin Ratio = ($80,000 - $40,000) / $80,000
Contribution Margin Ratio = 50%

Answer e.

Weighted Average Contribution Margin Ratio = 20% * 25% + 80% * 50%
Weighted Average Contribution Margin Ratio = 45%

Answer f.

Breakeven Point in dollars = Fixed Costs / Weighted Average Contribution Margin Ratio
Breakeven Point in dollars = $37,000 / 0.45
Breakeven Point in dollars = $82,222