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In: Accounting

Archer Industries sells three different sets of sportswear. Sleek sells for $30 and has variable costs...

Archer Industries sells three different sets of sportswear. Sleek sells for $30 and has variable costs of $18; Smooth sells for $50 and has variable costs of $30; Potent sells for $70 and has variable costs of $45. The sales mix of the three sets is: Sleek, 50%; Smooth, 30%; and Potent, 20%.Instructionsa) What is the weighted-average unit contribution margin? b) The company’s total fixed costs are $1,700,000 per year, what is the total number of units that the company must sell per year to break even? c) Determine the number of sportswear of each set that the company must sell to break even? Show all work please

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Expert Solution

a) Calculation of weighted-average contribution margin:

weighted-average contribution margin = (0.5* Contribution for Sleek sells) + (0.3 * Contribution for Smooth sells) + (0.2 * Contribution for Potent sells)

weighted-average contribution margin = [0.5 * ( 30-18)] + [0.3 * (50-30)] + [0.2 * (70-45)]

weighted-average contribution margin = 6 + 6 + 5

weighted-average contribution margin = 17

b) Number of units that the company must sell per year to break even:

Number of units that the company must sell per year to break even = Total Fixed Cost / Weighted-average contribution margin

Number of units that the company must sell per year to break even = 1,700,000 / 17

Number of units that the company must sell per year to break even = 100,000 units

c) Number of sportswear of each set that the company must sell to break even:

Number of Sleek sells that company must sell = 0.5 * Total number of units that the company must sell per year to break even

  Number of Sleek sells that company must sell = 0.5 * 100,000

  Number of Sleek sells that company must sell = 50,000

Number of Smooth sells that company must sell = 0.3 * Total number of units that the company must sell per year to break even

  Number of Smooth sells that company must sell = 0.3 * 100,000

  Number of Smooth sells that company must sell = 30,000

  Number of Potent sells that company must sell = 0.2 * Total number of units that the company must sell per     year to break even

  Number of Potent sells that company must sell = 0.2 * 100,000

  Number of Potent sells that company must sell = 20,000

ekkarill92 answered 2 years ago
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