Question

6.

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $377,400, and the sales mix is 20% bats and 80% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$40		$30
Gloves	100		60

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

Baseball bats	units
Baseball gloves	units

7.

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

Fuel	$15,200
Flight crew salaries	11,642
Airplane depreciation	5,498
Variable cost per passenger—business class	65
Variable cost per passenger—economy class	50
Round-trip ticket price—business class	575
Round-trip ticket price—economy class	320

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 10% business class and 90% economy class seats.

Total number of seats at break-even

seats

b. How many business class and economy class seats would be sold at the break-even point?

Business class seats at break-even	seats
Economy class seats at break-even	seats

8.

Margin of Safety

a. If Canace Company, with a break-even point at $518,400 of sales, has actual sales of $810,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $ 291,600

2. 36 %

b. If the margin of safety for Canace Company was 45%, fixed costs were $1,871,100, and variable costs were 55% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$ ___________________________

Answer 1

6
a
Fixed costs	377400
/ Weighted average unit contribution margin	34	=(40-30)*20%+(100-60)*80%
Break-even sales (units)	11100
b
Baseball bats	2220	=11100*20%
Baseball gloves	8880	=11100*80%
7
a
Fixed costs	32340	=15200+11642+5498
/ Weighted average unit contribution margin	294	=(575-65)*10%+(320-50)*90%
Total number of seats at break-even	110
b
Business class seats at break-even	11	=110*10%
Economy class seats at break-even	99	=110*90%
8
a
Actual sales	810000
Less: Break-even point sales	518400
Margin of safety (1) in dollars	291600
Margin of safety (2) as a percentage of sales	36%	=291600/810000
b
Fixed costs	1871100
/ Contribution margin ratio	45%	=1-55%
Break-even in sales dollars	4158000
Amount of actual sales (dollars)	7560000	=4158000/55%