Question

The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers. The following data were gathered on activities last month:

                                                                              Sleds             Saucers

Sales in units                                                         2,000                9,000

Selling price per unit                                               $50                  $20

Variable production costs per unit                           $20                    $5

Traceable fixed production costs                    $12,000         $33,000

Variable selling expenses per unit                           $2                     $1

Traceable fixed selling expenses                     $2,000              $3,000

Allocated division administrative expenses   $40,000           $72,000

Required:

a. Prepare a segmented income statement in the contribution format for last month, showing both "Amount" and "Percent" columns for the division as a whole and for each product.

b. Why might it be very difficult to calculate separate break-even sales for each product?
c. Refer to the original data and, if necessary, the results of the segmented income statement prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that none of the fixed production costs and fixed selling expenses is traceable. Allocate the total break-even sales between the two products.
d. Again, refer to the original data and, if necessary, the results of the segmented income statement prepared in part (a) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that the "allocated" amounts of the division's administrative expenses are fixed and actually traceable. Allocate the total break-even sales between the two products.
e. How reasonable are the total break-even sales numbers calculated in parts (c) and (d) given the actual results for last month?

Answer 1