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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