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Contact WheelsLtd manufactures and sells car tyres. It has developed two new models, ‘Z-Grip’ and ‘Y-Slip’,...

Contact WheelsLtd manufactures and sells car tyres. It has developed two new models, ‘Z-Grip’ and ‘Y-Slip’, for use in long distance driving which will be launched in January 2021.These will be sold exclusively in the company’s new car-mart. The annual fixed cost is $180,000. From a pre-launch market survey, it expects that sixty percent of the potential customers prefer ‘Z-Grip’ while forty percent prefer ‘’Y-Slip’. The following information has been extracted to facilitate a Cost-Volume-Profit analysis:

Z-Grip

Y-Slip

Selling Price per tyre

$300

$400

Variable Cost per tyre

$80

$120

Sales commission per unit

$20

$30

Required:

  1. Calculate the Unit contribution margin for each model of the tyres.
  2. Calculate the weighted average contribution margin, assuming the sales mix as determined from the survey is expected to remain constant
  3. Calculate the break-even point in units and in sales dollars (in total and per product) for Contact Wheels Ltd’s new car-mart. Assume a constant sales mix.
  4. How many tyres of each modelneedto be sold to earn a target net profit of $66,000? Assume a constant sales mix.
  5. Identify any two factors that may affect a cost-volume-profit analysis

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Expert Solution

ekkarill92 answered 2 years ago
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