Question

In: Accounting

19. Positronic Products manufactures three lines of heavy equipment for electrical, chemical, and atomic research. Each...

19. Positronic Products manufactures three lines of heavy equipment for electrical, chemical, and atomic research. Each of the three lines constitutes a third of the total sales of Positronic. The contribution margin ratio is 20 percent for the electrical line, 25 percent for the chemical line, and 55 percent for the atomic research line. Total sales have been forecast at $24,000,000 for the next year, while total fixed costs are expected to be $5,250,000.

a.Prepare a table showing (1) sales, (2) total variable
costs, and (3) the total contribution margin associated
with each product line.


b. At the given sales mix, what is the breakeven
point in dollars?

Solutions

Expert Solution

a.
Sales Total Variable cost Total Contribution Margin
Electrical $           80,00,000 $       64,00,000 $            16,00,000
Chemical $           80,00,000 $       60,00,000 $            20,00,000
Atomic research $           80,00,000 $       36,00,000 $            44,00,000
Working:
1)
Product Total Sales Weight of product Sales of Product
a b a*b
Electrical $       2,40,00,000 1/3 $            80,00,000
Chemical $       2,40,00,000 1/3 $            80,00,000
Atomic research $       2,40,00,000 1/3 $            80,00,000
2)
Variable cost = Sales - Contributon Margin
Product Sales Contribution Margin Ratio Contribution Margin Variable Cost
a b c=a*b d=a-c
Electrical $           80,00,000 20% $            16,00,000 $ 64,00,000
Chemical $           80,00,000 25% $            20,00,000 $ 60,00,000
Atomic research $           80,00,000 55% $            44,00,000 $ 36,00,000
b.
Break even point in dollars $    4,72,50,000
Working:
1) Calulation of Weighted Contribution Margin Ratio:
Product Contribution Margin Weight Weighted Contribution Margin
Electrical $           16,00,000 1/3 $         5,33,333.33
Chemical $           20,00,000 1/3 $         6,66,666.67
Atomic research $           44,00,000 1/3 $      14,66,666.67
Total $      26,66,666.67
2)
Weighted Contribution a $     26,66,666.67
Total Sales b $ 2,40,00,000.00
Weighted Contribution Margin Ratio a/b 11.11%
3) Break even point in dollars = Fixed Costs/Weighted Contribution Margin Ratio
= $       52,50,000 / 11.11%
= $    4,72,50,000

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