In: Accounting
Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income
Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:
Basic Sled | Aerosled | Total | |||
Sales | $3,000,000 | $2,400,000 | $5,400,000 | ||
Total variable cost | 1,000,000 | 1,000,000 | 2,000,000 | ||
Contribution margin | $2,000,000 | $1,400,000 | $3,400,000 | ||
Direct fixed cost | 778,000 | 650,000 | 1,428,000 | ||
Product margin | $1,222,000 | $750,000 | $1,972,000 | ||
Common fixed cost | 198,900 | ||||
Operating income | $1,773,100 |
The selling prices are $30 for the basic sled and $60 for the aerosled. (Round break-even packages and break-even units to the nearest whole unit.)
Required:
1. Compute the number of units of each product that must be sold for Basu to break even.
Basic ____ (in units) | |
Aero ____ (in units) |
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole number.
Basic ____ (in units) | |
Aero ____ (in units) |
3. Conceptual Connection: Refer to the original
data. Suppose that Basu can increase the sales of aerosleds with
increased advertising. The extra advertising would cost an
additional $195,000, and some of the potential purchasers of basic
sleds would switch to aerosleds. In total, sales of aerosleds would
increase by 12,000 units, and sales of basic sleds would decrease
by 5,000 units. Would Basu be better off with this strategy? If so,
give the amount of increase in income.
___ $