Question

CVP Analysis of Multiple Products

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 100,000 regular models and 20,000 deluxe models. A segmented income statement for the two products is as follows:

		Regular Model		Deluxe Model		Total
Sales		$15,000,000		$13,400,000		$28,400,000
Less: Variable costs		9,000,000		8,040,000		17,040,000
Contribution margin		$6,000,000		$5,360,000		$11,360,000
Less: Direct fixed costs		1,200,000		960,000		2,160,000
Segment margin		$4,800,000		$4,400,000		$9,200,000
Less: Common fixed costs						1,702,400
Operating income						$7,497,600

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.

Regular models	units
Deluxe models	units

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Contribution margin ratio
Revenue	$

Answer 1

1). Steinberg expects to sell 100,000 regular models and 20,000 deluxe models. Sales mix of Regular models to deluxe models = 100000 : 20000 = 5 : 1

Contribution margin per unit of regular model = $6,000,000 / 100,000 = $60
Contribution margin per unit of deluxe model = $5,360,000 / 20,000 = $268

Let the no. of units of deluxe model to be sold for breakeven be 'x' hence the units for regular model be '5x'
At breakeven : Contribution = Fixed cost
($60 * x + $268 * 5x) = ($2,160,000 + $1,702,400)
($60x + $1340x) = $3,862,400
$1400x = $3,862,400
x = $3,862,400 / $1400 = 2758.86 units or 2759 units rounded off.
Hence Deluxe units for breakeven is 2759 units
Regular units for breakeven is 2758.86 * 5 = 13794.3 or 13794 units rounded off.

b). Contribution margin ratio = Total Contribution margin / Total sales
= $11,360,000 / $28,400,000
= 0.4 or 40%

Sales for breakeven = Total fixed costs / Contribution margin ratio
= $3,862,400 / 0.40
= $9,656,000