Question

On-the-Go, Inc., produces two models of traveling cases for laptop computers—the Programmer and the Executive. The bags have the following characteristics. Programmer Executive Selling price per bag $ 60 $ 90 Variable cost per bag $ 30 $ 40 Expected sales (bags) per year 7,000 10,500 The total fixed costs per year for the company are $668,000. Required:

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break-even point, compute the break-even point.

c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go?

Answer 1

			programmer	Executive	total CM
	selling price per unit		60	90
	variable cost per unit		30	40
	CM per unit		30	50
	units		7,000	10,500	ratio will be 40%:60%
	total contribution		210000	525000	735000
	Total fixed expense				-668000
	profit				67000
1)	Profit	67000
2)	Break even point		15905
	fixed cost/weighted contribution margin
	668000/(30*40+50*60%)
	15905
3)	Break even point		20875
	fixed cost/weighted contribution margin
	668000/(30*90+50*10%)
	20875