Question

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $12,100,000.

(a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$enter a dollar amount rounded to 0 decimal places
Sale of mail pouches and small boxes		$enter a dollar amount rounded to 0 decimal places
Sale of non-standard boxes		$enter a dollar amount rounded to 0 decimal places

(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that 60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company’s break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$enter a dollar amount rounded to 0 decimal places
Sale of mail pouches and small boxes		$enter a dollar amount rounded to 0 decimal places
Sale of non-standardized boxes		$enter a dollar amount rounded to 0 decimal places

Answer 1

(A)
	Total Break even sales	$ 40333333
	Sale of mail pouches and small boxes	$ 32266666
	Sale of non-standard boxes	$ 8066667
	Working:
	Particular	mail pouches	non- standard
		& small boxes	boxes
	Contribution margin ratio	20%	70%
	Percentage	80%	20%
	Weighted average contribution margin ratio	20*80% =16	70*20% =14	30%
	Fixed cost			12100000
	Break even point (total) seats			40333333	(12100000/30%)
	Break even point (individually)	32266666	8066666.6
		(40333333*80%)	(40333333*20%)
(B)	Total Break even sales	$ 24200000
	Sale of mail pouches and small boxes	$ 9680000
	Sale of non-standard boxes	$ 14520000
	Working:
	Particular	mail pouches	non- standard
		& small boxes	boxes
	Contribution margin ratio	20%	70%
	Percentage	40%	60%
	Weighted average contribution margin ratio	20*40% =8	70*60% = 42	50%
	Fixed cost			12100000
	Break even point (total) seats			24200000	(12100000/50%)
	Break even point (individually)	9680000	14520000
		(2420000*40%)	(2420000*60%)