Question

Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics: Chicken Fish Selling price per taco $ 3.70 $ 5.20 Variable cost per taco 1.85 2.60 Expected sales (tacos) 204,000 296,000 The total fixed costs for the company are $112,000. Required: a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix would be 44 percent chicken and 56 percent fish at the break-even point, compute the break-even volume. (In your computations, round up the total units to break-even to the nearest whole number and round other intermediate calculations to 2 decimal places. Round your final answers up to the nearest whole unit.) c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break-even volume? (In your computations, round up the total units to break-even to the nearest whole number and round other intermediate calculations to 2 decimal places. Round your final answers up to the nearest whole unit.)

Answer 1

A.

	Chicken	Fish	Total
Sales	754,800 (3.7*204,000)	1,539,200 (5.2*296,000)	2,294,000
Variable costs	377,400 (1.85*204,000)	769,600 (2.6*296,000)	1,147,000
Contribution margin	377,400	769,600	1,147,000
Fixed costs			112,000
Operating income			1,035,000

B.

Contribution margin = Selling price - Variable cost

Contribution margin for chicken = 3.7 - 1.85 = 1.85

Contribution margin for fish = 5.2 - 2.6 = 2.6

Weighted average contribution margin = (chicken contribution margin * sales mix) + (fish contribution margin * sales mix)

= (1.85 * 44%) + (2.6 * 56%)

= 2.27

Breakeven voluem = Fixed costs / Weighted average contribution margin

= 112,000 / 2.27

= 49,340

c.

Contribution margin = Selling price - Variable cost

Contribution margin for chicken = 3.7 - 1.85 = 1.85

Contribution margin for fish = 5.2 - 2.6 = 2.6

Sales mix = 4 : 1

Weighted average contribution margin = (chicken contribution margin * sales mix) + (fish contribution margin * sales mix)

= [(1.85 * 4) + (2.6 * 1)] / 5

= 2

Breakeven voluem = Fixed costs / Weighted average contribution margin

= 112,000 / 2

= 56,000.