Question

Travel On Inc. sells luggage. They sell a duffle bag, a carry-on suitcase and a deluxe suitcase. The price and variable cost for each type of luggage is listed below.

	Price	Variable Cost
Duffle bag	$100	$ 25
Carry-on	180	40
Deluxe	300	120

?

The total fixed costs for Travel On Inc. equals $60,000. For every 8 duffle bags Travel On Inc sells it sells 3 carry-on suitcases and 1 deluxe suitcase.

Required: Show your calculations!
A.) Calculate the package contribution margin.

B.) Calculate the break-even point in units for duffle bags, carry-on suitcases and deluxe suitcases.

C.) If Travel On Inc. has a target income for the coming year of $300,000, how many packages will company have to sell?

D.) Based on your answer in Part C, prepare a contribution margin income statement for the coming year.

E.) What is the company’s margin of safety in packages?

Answer 1

Rreq 1:
Package Contribution margin:
			Duffle Bag	Ccarry-on	Deluxe	Total
Selling price			100	180	300
Lless: Variable cost			25	40	120
Contribution margin			75	140	180
Sales mix			8	3	1
Contribution margin for the package			600	420	180	1200
Contribution margin for package: $ 1200
Req 2:
Total Fixed cost: $60,000
Contribution per package: $ 1200
Number of packages to be break even = fixed cost / Contribution per package
			$ 60,000 /1200 = 50 packages
Number of units to be break even:
Duffle bag (50*8)		400 units
Carry-on (50*3)		150 units
Deluxe ( 50*1)		50 units
Req 3:
Desired profit: $ 300,000
Desired Contribution: 300,000+60,000 = 360,000
Target sales in packages: Desired contribution / Contribution per package
		$ 360,000 /1200 = 300 packages
Req 4:
Contribution margin Income statement:
			Total	Duffle bag	Carry-on	Deluxe
			300 package	2400 units	900 units	300 units
Sales revenue			492000	240000	162000	90000
Less: variable cost			132000	60000	36000	36000
Contribution margin			360000	180000	126000	54000
Less: Fixed cost			60000
Target income			300,000
Req 5:
Margin of safety in packages: Net income / contribution per package
			$300,000 / 1200 = 250 packages