Question

Unit sold: Standard Carrier: 132,000 Deluxe Carrier: 88,000 Total: 220,000

Revenue at $25 and $61 per unit $3,300,000 $5,368,000 $8,687,000

Variable costs at $15 and $31 per unit 1,980,000 2,728,000 4,708,000

Contribution margins at $10 and $30 per unit $1,320,000 $2,640,000 $3,960,000

Fixes Costs $2,205,000

Operating Income $1,755,000

The Ready company retails two​ products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as​ follows:  

Requirement 1. Compute the breakeven point in​ units, assuming that the company achieves its planned sales mix. Begin by determining the sales mix. For every 2 deluxe units sold: ? stand units are sold.

This is the formula used to calculate the breakeven point when there is more than one product sold. Enter the amounts in the formula to calculate the breakeven point.

Fixes cost / Contribution margin per bundle = Breakeven point in bundles

$ ? / $ ? = $ ?

The breakeven point is: ? standard unit and : ? deluxe units.

Requirement 2. Compute the breakeven point in units​ (a) if only standard carriers are sold and​ (b) if only deluxe carriers are sold.

(a) If only standard carriers are sold, the breakeven point is : ? units

(b) If only deluxe carriers are sold, the breakeven point is: ? units

Requirement 3. Suppose 220,000 units are sold but only 22,000 of them are deluxe. Compute the operating income. Compute the breakeven point in units. Compare your answer with the answer to requirement 1. What is the major lesson of this​ problem?

Compute the operating income if

220,000 units are sold but only 22,000 of them are deluxe.

	Standard Carrier	Deluxe Carrier	Total
Units sold	?	?	?
Revenues at $25 and $61 per unit	?	?	?
Variable costs at $15 and $31 per unit	?	?	?
Contribution margin	?	?	?
Fixed costs			?
Operating income			?

Before calculating the breakeven points, determine the new sales mix.

For every 1 deluxe carrier sold: ? standard carriers are sold,
Compute the breakeven point in​ units, assuming the new sales mix. ​(Round your answers up to the next whole​ number.)

The breakeven point is

: ?

standard units and

: ?

deluxe units.

Compare your answer with the answer to requirement 1.

.

Answer 1

	Requirement 1
	Sales Mix (3:2) for every 2 units of deluxe, 3 units of standard are sold
	Deluxe units sold	88000
	Total units sold	220000
	Ratio (88000/220000)	40%
	Standard unit ratio	60%
	Thus, for every 2 deluxe unit, 3units of standard is sold(2/40%*60%)
	Weighted average unit contribution margin
	Weighted average unit contribution margin = Sales mix x contribution margin of standard + Sales mix x Contribution Margin of deluxe
	Per unit contribution margin of standard	$10
	Per unit contribution margin of deluxe	$30
	Weighted Average unit contribution margin	18.00
	Break even units
	Break even units = Fixed cost /weighted average unit contribution margin
	= $2205000/$18
	= 122500 units
	Standard (122500 units x 60%)	73500
	Deluxe (122500 units x 40%)	49000
	Requirement 2
a	If only standard carriers are sold
	Contribution margin per unit	$10
	Fixed cost	$2,205,000
	Breakeven in units (2205000/10)	220,500
b	If only deluxe carriers are sold
	Contribution margin per unit	$30
	Fixed cost	$2,205,000
	Breakeven in units (2205000/30)	73,500
	Requirement 3
	Compute the operating income
		Standard	Deluxe	Total
	Units sold	198000	22000	220000
	Revenue	4,950,000	1,342,000	6,292,000
	Variable cost	2,970,000	682,000	3,652,000
	Contribution margin	1,980,000	660,000	2,640,000
	Fixed Costs			2,205,000
	Operating income			435,000
	Sales Mix
	Deluxe units sold	22000
	Total units sold	220000
	Ratio (88000/220000)	10%
	Standard unit ratio	90%
	Thus, for every 1 deluxe unit, 9units of standard is sold(1/10%*90%)
	Per unit contribution margin of standard	$10
	Per unit contribution margin of deluxe	$30
	Weighted Average unit contribution margin	18.00
	Break even units
	Break even units = Fixed cost /weighted average unit contribution margin
	= $2205000/$18
	= 122500 units
	Standard (122500 units x 90%)	110250
	Deluxe (122500 units x 10%)	12250