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	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	72000	24000	$             27,360,000
g	Profit(e-f)			$               1,140,000
B	The Product mix is 75,000:25,000 which will be 3:1
	Break even point = Fixed cost/Contribution margin per unit
	Break even point = 27,360,000/285	=	96,000 units
	Break even point for AU	=	96,000*3/4 =	72000 units
	Break even point for NZ	=	96,000*1/4 =	24000 units
C	If Product mix is 5:1
	Break even point for AU	=	96,000*4/5 =	76800 units
	Break even point for NZ	=	96,000*1/5 =	19200 units