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	$	70		$	100
Variable cost per bag	$	40		$	50
Expected sales (bags) per year		8,000			12,000

The total fixed costs per year for the company are $679,000.

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. (Round your final answer up to the nearest whole unit.)

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? (Round your final answer up to the nearest whole unit.)

Answer 1

a.	Anticipated profit:
					Programmer	Executive	Total
	Expected sales (bags) per year				8000	12000
					$	$
	Sales revenue				560000	1200000
					(8000*70)	(12000*100)
	Less: variable cost				320000	600000
					(8000*40)	(12000*50)
	Contribution margin				240000	600000	840000
	Less: Total fixed cost						679000
	Operating profit						161000
b.	Break-even point=Fixed cost/Weighted average contribution margin per unit
	Weighted average contribution margin per unit:
					Programmer	Executive	Total
	Selling price per bag				70	100
	Less: Variable cost per bag				40	50
	Contribution margin per unit			a	30	50
	Weight	(8000:12000 or 2:3)		b	2/5=0.4	3/5=0.6
	Weighted average contribution margin per unit			a*b	12	30	42
	Break-even point=679000/42=16166.67=16167 bags
c.	Weight will be 9:1
	Break-even point=Fixed cost/Weighted average contribution margin per unit
	Weighted average contribution margin per unit:
					Programmer	Executive	Total
	Selling price per bag				70	100
	Less: Variable cost per bag				40	50
	Contribution margin per unit			a	30	50
	Weight			b	9/10=0.9	1/10=0.1
	Weighted average contribution margin per unit			a*b	27	5	32
	Break-even point=679000/32=21218.75=21219 bags
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