Question

Alex and Adam are coffee roasters. They can roast up to 12,000 pounds of coffee beans monthly at their flagship store in Soho. However, they can only sell 3,000 pounds of coffee beans in the Soho store (flagship). Thus, Alex and Adam decided to open two additional retail stores where the remaining beans will be sold. In each of the two new stores they can only sell 4,500 pounds of coffee beans monthly. The fix costs of the flagship store are $45,000 and the fix costs of each of the retail stores are $15,000. The variable costs of producing a pound of coffee beans are $7 per pound. The variable selling costs are $3 per pound at the flagship store and $2 per pound at the two retail stores. There is enough demand in all of the stores to satisfy the selling capabilities of each store. Yet, Alex and Adam would like to first satisfy the sale in the flagship store before transferring products to the two retail stores. The average selling price for a pound of coffee beans is $18. The expenses listed so far do not include Alex and Adam’s salaries. If each owner requires a monthly salary of $6,000, how many pounds of coffee beans must be sold monthly? . Lululemon makes two types of yoga mats. Data for the company’s activities during a typical month are as follows: Thin Mat Model Thick Mat Model Sales Units 45,000 65,000 Selling Price per unit $30 $40 Variable Expense per unit $10 $15 Lululemon’s fixed costs are $352,500. Lululemon is thinking about of introducing a new mat called the Master Mat which will sell for $75 and will cost $65 (per unit). After the Master Mat is manufactured the sales mix is expected to be 3:3:4 for the three mats (Thin;Thick;Master). The addition of the Master model will increase Fixed Costs by $85,000. There are no inventories in the beginning or ending of the period. What are the breakeven units per product?

Answer 1

1) Calculation of Total Cost of Flagship Store :-

Fixed Cost = $45000 + $6000 = $51000

Variable Cost Per Pound of Coffee Beans= $7 + $3 = $10

Sales At Flagship Store = 3000 * $18 = $54000

Net Income = Sales - Variable Cost - Fixed Cost

= $54000 - (3000*$10) - $51000

= ($33000)

Calculation of Total Cost at retail stores:-

Fixed Cost = $45000 + $6000 + $15000 = $66000

Variable Cost Per Pound of Coffee Beans = $7 + $3 + $2 = $12

No. of pound Coffee beans Sold = 4500 * 2 = 9000

Net Income = Sales - Variable Cost - Fixed Cost

= (9000*$18) - (9000*$12) - $66000

= $162000 - $108000 - $66000

= ($12000)

Conclusion is alex and adam Sale at Retail Stores .

No. of pounds of Coffee beans Sales at Break even point :-

Contribution Margin Per pound of Coffee Beans = Sales - Variable

= $18 - $12

= $6

Sales at Break even point = Fixed Cost / Contribution Margin Per Pound

= $66000 / $6

= 11000 Pound of Coffee Beans

2) Calculation of Contribution Each Mat ;-

Particulars	Thin	thick	Master
Sale Per Mat	$30	$40	$75
Less : Variable Cost	($10)	($15)	($65)
Contribution per mat (A)	$20	$25	$10
Ratio (B)	3/10	3/10	4/10
Contribution Per Composite unit(A*B)	$6	$7.5	$4

Total Contribution per Composite Unit = $6 + $7.5 +$4 = $17.5

Total Fixed Cost = $352500 + $85000 = $437500

Total Break Even Point = Fixed Cost / Contribution Per Composite unit

= $437500 / $17.5

= 25000 mats

Break even units per product :-

Thin Mat = 25000 * 3/10 = 7500 mats

Thick Mat = 25000 * 3/10 = 7500 mats

Master Mat = 25000 * 4/10 = 10000 mats