Question

On-the-Go, Inc., produces two models of traveling cases for laptop computers—the Programmer and the Executive. The bags have the following characteristics.

	Programmer			Executive
Selling price per bag	$	60		$	100
Variable cost per bag	$	20		$	40
Expected sales (bags) per year		8,000			12,000

The total fixed costs per year for the company are $669,000.

Required:

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

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

c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go?

Answer 1

a. Anticipated level of profits

Sr No	Particulars	Programmer	Executive	Total
a	Sales	480,000	1,200,000	1,680,000
b	Variable Cost	160,000	480,000	640,000
c (a-b)	Contribution Margin	320,000	720,000	1,040,000
d	Fixed Cost			669,000
e (c-d)	Profit			371,000

b. Breakeven Point

Particulars	Programmer	Executive
Sales	60	100
Variable Cost	20	40
Contribution per unit	40	60

• Sales Mix =8,000:12,000

= 2:3

• Contribution Margin for Sales Mix = (2*40)+(3*60)

= $ 260

• Contribution Margin for 5 units is $ 260
• Break-even point = Fixed Costs/Contribution Margin Per Unit
• Break-even point for product mix = 669,000*5/260
• = 12,865 Units

c. Breakeven Volume

• Sales Mix = 9:1
• Contribution Margin for Sales Mix = (9*40)+(1*60)

= $ 420

• Contribution Margin for 10 units is $ 420
• Break-even point for product mix = 669,000*10/420
• = 15,929 Units