Question

Malibu Corporation has monthly fixed costs of $63,000. It sells two products for which it has provided the following information. Sales Price Contribution Margin Product 1 $ 15 $ 9 Product 2 20 4

a. What total monthly sales revenue is required to break even if the relative sales mix is 30 percent for Product 1 and 70 percent for Product 2? (Round your answer to the nearest dollar amount.)

b. What total monthly sales revenue is required to earn a monthly operating income of $16,000 if the relative sales mix is 20 percent for Product 1 and 80 percent for Product 2? (Round your answer to the nearest dollar amount.)

Answer 1

• All working forms part of the answer
• Requirement ‘a’

Working		Product 1	Product 2	Total
A	Contribution margin	$9	$4
B	Sales Price	$15	$20
C = (A/B) x 100	CM Ratio	60%	20%
D	Sales Mix	30%	70%
E = C x D	Weighted Average CM Ratio	18%	14%	32%
F	Fixed Cost			$63,000
G = F/E	Total Monthly Sales revenue required to Break Even = ANSWER			$196,875

• Requirement ‘b’

Working		Product 1	Product 2	Total
A	Contribution margin	$9	$4
B	Sales Price	$15	$20
C = (A/B) x 100	CM Ratio	60%	20%
D	Sales Mix	20%	80%
E = C x D	Weighted Average CM Ratio	12%	16%	28%
F	Fixed Cost			$63,000
G	Operating Income required			$16,000
H = F+G	Total Contribution margin required			$79,000
I = H/E	Total Monthly Sales revenue required to earn target operating income = ANSWER			$282,143