Question

Exercise 19-08

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,640,100.

(a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$
Sale of mail pouches and small boxes		$
Sale of non-standard boxes		$

(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that 60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company’s break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$
Sale of mail pouches and small boxes		$
Sale of non-standardized boxes		$

Answer 1

(a)	Weighted average contribution margin
		Mail pouches and small boxes	Non-standard boxes	Total
	Sales %	80%	20%
	Contribution Margin	20%	70%
	Weighted average contribution margin	16.00%	14.00%	30.00%
	Breakeven point in total sales dollars	$ 45,467,000	( 13,640,100 / 30% )
	Total break-even sales	$ 45,467,000
	Sale of mail pouches and small boxes	$ 36,373,600	(45,467,000 x 80% )
	Sale of non-standard boxes	$ 9,093,400	(45,467,000 x 20% )
(b)	Weighted average contribution margin
		Mail pouches and small boxes	Non-standard boxes	Total
	Sales %	40%	60%
	Contribution Margin	20%	70%
	Weighted average contribution margin	8.00%	42.00%	50.00%
	Breakeven point in total sales dollars	$ 27,280,200	( 13,640,100 / 50% )
	Total break-even sales	$ 27,280,200
	Sale of mail pouches and small boxes	$ 10,912,080	(27,280,200 x 40% )
	Sale of non-standard boxes	$ 16,368,120	(27,280,200 x 60% )