Question

Current Designs manufactures two different types of kayaks, rotomolded kayaks and composite kayaks. The following information is available for each product line.

		Rotomolded		Composite
Sales price/unit		$800		$2,000
Variable costs/unit		$480		$1,340

The company’s fixed costs are $706,160. An analysis of the sales mix identifies that rotomolded kayaks make up 80% of the total units sold.

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Determine the weighted-average unit contribution margin for Current Designs.

Weighted-average unit contribution margin

$

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Determine the break-even point in units for Current Designs and identify how many units of each type of kayak will be sold at the break-even point.

Break-even sales

units

		Rotomolded Kayaks			Composite Kayaks
Break-even sales distribution			units			units

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Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units sold.

Calculate the total number of units that would need to be sold to earn a net income of $1,724,560 and identify how many units of each type of kayak will be sold at this level of income.

Required sales

units

		Rotomolded Kayaks			Composite Kayaks
Break-even sales distribution			units			units

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Assume that Current Designs will have sales of $2,700,000 with two-thirds of the sales dollars in rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $568,000 of fixed costs are allocated to the rotomolded kayaks and $138,160 to the composite kayaks, prepare a CVP income statement for each product line.

		Rotomolded Kayaks		Composite Kayaks
Administrative ExpensesContribution MarginFixed CostsGross ProfitNet Income / (Loss)SalesSelling ExpensesVariable Costs		$		$
Administrative ExpensesContribution MarginFixed CostsGross ProfitNet Income / (Loss)SalesSelling ExpensesVariable Costs
Administrative ExpensesContribution MarginFixed CostsGross ProfitNet Income / (Loss)SalesSelling ExpensesVariable Costs
Administrative ExpensesContribution MarginFixed CostsGross ProfitNet Income / (Loss)SalesSelling ExpensesVariable Costs
Administrative ExpensesContribution MarginFixed CostsGross ProfitNet Income / (Loss)SalesSelling ExpensesVariable Costs		$		$

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Calculate the degree of operating leverage for each product line. (Round answers to 2 decimal places, e.g. 52.75.)

		Rotomolded Kayaks		Composite Kayaks
Degree of operating leverage

Answer 1