Question

Sheridan, Inc., sells two types of water pitchers, plastic and glass. Plastic pitchers cost the company $19 and are sold for $34. Glass pitchers cost $28 and are sold for $49. All other costs are fixed at $3,429,972 per year. Current sales plans call for 48,860 plastic pitchers and 146,580 glass pitchers to be sold in the coming year.

How many pitchers of each type must be sold to break even in the coming year? (Use contribution margin per unit to calculate breakeven units.)

Sheridan, Inc., has just received a sales catalog from a new supplier that is offering plastic pitchers for $17. What would be the new contribution margin per unit if managers switched to the new supplier?

What would be the new breakeven point if managers switched to the new supplier? (Use contribution margin per unit to calculate breakeven units. Round answers to 0 decimal places, e.g. 25,000.)

Answer 1

• All working forms part of the answer
• Requirement 1: Break Even Units for Plastic & Glass Pitchers

---Working---

Working		Plastic Pitchers	Glass Pitchers	Total
A	Current Sales	48,860	146,580	195,440
B = A/195440	Sales Mix %	25%	75%	100%
C	Sales price per unit	$                                           34.00	$                           49.00
D	Variable cost per unit	$                                           19.00	$                           28.00
E = C - D	Contribution margin per unit	$                                           15.00	$                           21.00
F = E x B	Weighted Average Contribution per unit	$                                              3.75	$                           15.75	$                                              19.50

---Calculation and Answer----

A	Total Fixed Cost	$                             3,429,972.00
B	Weighted Average Contribution per unit	$                                           19.50
C = A/B	Total Break Even Units	175,896
D = C x 25%	Plastic Pitcher Break Even [25%]	43,974
E = C x 75%	Glass Pitcher Break Even [75%]	131,922

• Requirement 2: New contribution margin

Working		Plastic Pitchers	Glass Pitchers
A	Sales price per unit	$                                           34.00	$                           49.00
B	Variable cost per unit	$                                           17.00	$                           28.00
C = A - B	Contribution margin per unit	$                                           17.00	$                           21.00

• Requirement 3: New Break Even Units for both

---Working---

Working		Plastic Pitchers	Glass Pitchers	Total
A	Current Sales	48,860	146,580	195,440
B = A/195440	Sales Mix %	25%	75%	100%
C	Sales price per unit	$                                           34.00	$                           49.00
D	Variable cost per unit	$                                           17.00	$                           28.00
E = C - D	Contribution margin per unit	$                                           17.00	$                           21.00
F = E x B	Weighted Average Contribution per unit	$                                              4.25	$                           15.75	$                                              20.00

---Calculation and Answer----

A	Total Fixed Cost	$                             3,429,972.00
B	Contribution margin per unit	$                                           20.00
C = A/B	Total Break Even Units	171,499
D = C x 25%	Plastic Pitcher Break Even [25%]	42,875
E = C x 75%	Glass Pitcher Break Even [75%]	128,624