Question

Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics:

	AU			NZ
Selling price per unit	$	480		$	480
Variable cost per unit	$	180		$	240
Expected units sold per year		75,000			25,000

The total fixed costs per year for the company are $27,360,000.

Required:

a. What is the anticipated level of profits for the expected sales volumes?

Anticipated Profit _____________________

b. Assuming that the product mix is the same at the break-even point, compute the break-even point.

Break Even point __________ Units

c. If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Break Even Point _________ Units

Answer 1

A
Point	Description	AU	NZ	Total
a	Units to sell	75,000 units	25,000 units	100,000 units
b	Selling price per unit	480	480
c	Variable cost per unit	180	240
d	Contribution margin(b-c)	300	240	$ 285 per unit
e	Total Contrubution (d*a)	$ 22,500,000	$  6,000,000	$ 28,500,000
f	Fixed cost	72,000	24,000	$ 27,360,000
g	Profit(e-f)			$ 1,140,000

B	The Product mix is 75,000:25,000 ,i.e 3:1
	Break even point = Fixed cost/Contribution margin per unit
	Break even point = 27,360,000/285 =96000 Units
AU	Break even point =96,000*3/4=72,000 Units
NZ	Break even point =96,000/1/4 =24,000 Units

C	If Product mix is 5:1
AU	Break even point =96,000*4/5 =76,800 Units
NZ	Break even point =96,000*1/5 =19,200 Units