Question

1.

Sales Mix and Break-Even Analysis

Jordan Company has fixed costs of $1,425,600. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow:

Product	Selling Price		Variable Cost per Unit			Contribution Margin per Unit
QQ	$680		$440			$240
ZZ	420		340			80

The sales mix for Products QQ and ZZ is 50% and 50%, respectively. Determine the break-even point in units of QQ and ZZ. If required, round your answers to the nearest whole number.

a. Product QQ ___units

b. Product ZZ ___units

2.

Operating Leverage

Decatur Co. reports the following data:

Sales		$557,300
Variable costs		356,700
Contribution margin		$200,600
Fixed costs		156,000
Income from operations		$44,600

Determine Decatur Company's operating leverage. Round your answer to one decimal place.

3.

Margin of Safety

The Whitehead Company has sales of $430,000, and the break-even point in sales dollars is $283,800.

Determine the company's margin of safety as a percent of current sales.
___%

Answer 1

Ans. 1 - a	Product QQ	4,455 units
Ans. 1 - b	Product ZZ	4,455 units
	*Working notes :
	*Calculations for Weighted contribution margin per unit :
		Contribution margin per unit (a)	Sales mix (b)	Weighted Contribution margin (a*b)
	Bats	$240.00	50%	$120
	Gloves	$80.00	50%	$40
	Weighted Contribution margin			$160
	*Calculations for break even sales for total company:
	Break even saes units for overall company   =   Total fixed cost/ Weighted contribution margin
	$1,425,600 / $160
	8,910 units
	*Calculations for break even sales for particular product:
	Break even point of particular products   =    Break even point in units for Total company * Sales mix
	Product QQ	8,910 * 50%
		4,455 units
	Product ZZ	8,910 * 50%
		4,455 units
Ans. 2	Operating leverage    =   Contribution margin / Income from operations
	$200,600 / $44,600
	4.5
Ans. 3	Margin of safety percentage = (Sales - Break even sales) / Sales * 100
	($430,000 - $283,800) / $430,000 * 100
	$146,200 / $430,000 * 100
	34.00%