In: Accounting
Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:
Basic Sled | Aerosled | Total | |||
Sales | $3,000,000 | $2,400,000 | $5,400,000 | ||
Total variable cost | 1,000,000 | 1,000,000 | 2,000,000 | ||
Contribution margin | $2,000,000 | $1,400,000 | $3,400,000 | ||
Direct fixed cost | 778,000 | 650,000 | 1,428,000 | ||
Product margin | $1,222,000 | $750,000 | $1,972,000 | ||
Common fixed cost | 198,900 | ||||
Operating income | $1,773,100 |
The selling prices are $30 for the basic sled and $60 for the aerosled. (Round break-even packages and break-even units to the nearest whole unit.)
Required:
1. Compute the number of units of each product that must be sold for Basu to break even.
Basic | units |
Aero | units |
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole number.
Basic | units |
Aero | units |
3. Conceptual Connection: Refer to the original
data. Suppose that Basu can increase the sales of aerosleds with
increased advertising. The extra advertising would cost an
additional $195,000, and some of the potential purchasers of basic
sleds would switch to aerosleds. In total, sales of aerosleds would
increase by 12,000 units, and sales of basic sleds would decrease
by 5,000 units. Would Basu be better off with this strategy? If so,
give the amount of increase in income.
Yes $
Computation of Weighted Average Contribution Margin Ratio | ||||
Prdouct | No. of Unit Sold |
Sales mix % (a) |
Contribution Peer Unit | Weighted average contribution Margin (WACM) (a*b) |
Basic | 100000 | 71% | $20.00 | $14.29 |
Aero | 40000 | 29% | $35.00 | $10.15 |
Weighted Average CM | $24.44 |
Part-1 | ||
BEP in Unit= Fixed Cost/ Weighted Average CM | ||
=(1428000+198900)/24.44= 66567 Unit | ||
For Basic= 66567*71%=202500 | ||
For Aerosled = 66567*29%=19304 |
Computation of Weighted Average Contribution Margin Ratio | ||||
Prdouct | No. of Unit Sold |
Sales mix % (a) |
Contribution Peer Unit | Weighted average contribution Margin (WACM) (a*b) |
Basic | 100000 | 63% | $20.00 | $12.50 |
Aero | 40000 | 38% | $35.00 | $13.13 |
Weighted Average CM | $25.63 |
Part-2 | ||
BEP in Unit= Fixed Cost/ Weighted Average CM | ||
=(1428000+198900)/25.63= 63476 Unit | ||
For Basic= 63476*63%=39990 Unit | ||
For Aerosled = 63476*29%=24121 Unit |
Part-3 | |||
Basic Sled | Aerrosed | Total | |
Sales | $2,850,000 | $3,120,000 | $5,970,000 |
Total variable cost | 950,000 | 1,300,000 | 2,250,000 |
Contribution margin | $1,900,000 | $1,820,000 | $3,720,000 |
Direct fixed cost | 778,000 | 650,000 | 1,428,000 |
Product margin | $1,122,000 | $1,170,000 | $2,292,000 |
Common fixed cost | 393,900 | ||
Operating income | $1,898,100 | ||
yes, there is increase in income by $125000 |