1.
Ascertain the break-even point in sales revenue.
1.
Explanation of Solution
Break-Even in sales revenue: The break-even in sales revenue refers to the sales volume required to cover the fixed and variable costs and left out with neither profit nor loss.
Compute the break-even in sales revenue:
The break-even sales revenue is $584,735.
Working notes:
Compute the contribution margin ratio:
The contribution margin ratio is 35%.
2.
Ascertain the sales mix to break-even.
2.
Explanation of Solution
Sales mix: Sales mix refers to relative distribution of the total sales amongst the total number of units sold by a company. It is also expressed as a percentage of units sold for each product produced with respect to the total units sold for all the products produced.
Compute the package contribution margin:
Input | Price (A) | Unit Variable cost (B) | Contribution margin | Sales Mix (D) |
Package Contribution margin |
Jay flex | $200 | $130.00 | $70.00 | 1 | $70 |
Free weights | $75 | $48.75 | $26.25 | 4 | $105 |
Package Total | $175 |
Table (1)
Compute the break-even packages:
The number of break-even packages is 900.
Compute the break-even Jay-flex:
The number of break-even for Jay-flex is 900 machines.
Compute the break-even free weights:
The number of break-even for free weights is 3,600 sets.
Working Notes:
Compute the number of units of Jay-flex:
The number of units of Jay-flex is 1,200.
Compute the number of units of free weights:
The number of units of free weights is 4,800.
Compute the price per unit for Jay-flex:
The price per unit for Jay-flex is $130.
Compute the price per unit for free weights:
The price per unit for free weights is $48.75.
3.
Compute the operating leverage and the percentage of change in profit.
3.
Explanation of Solution
Operating leverage: Operating leverage refers to the measurement of degree of the variable costs and fixed costs used by the firm. In other words, the operating leverage refers to the amount of net income of a company for the given change is sales.
Compute the operating leverage:
Compute the profit increase:
The profit increase percentage is 160%.
4.
Ascertain the sales mix after the addition of a new product and analyze its feasibility.
4.
Explanation of Solution
Compute the package contribution margin:
Input | Price (A) | Unit Variable cost (B) | Contribution margin | Sales Mix (D) |
Package Contribution margin |
Jay flex | $200 | $130.00 | $70.00 | 1 | $70 |
Free weights | $75 | $48.75 | $26.25 | 8 | $210 |
Jay rider | $180 | $140.00 | $40.00 | 1 | $40 |
Package Total | $320 |
Table (2)
Compute the break-even packages:
The number of break-even packages is 510.
Compute the break-even Jay-flex:
The number of break-even for Jay-flex is 510 machines.
Compute the break-even free weights:
The number of break-even for free weights is 4,080 sets.
Compute the break-even Jay-rider:
The number of break-even for Jay-rider is 510 machines.
Compute the operating income:
Particulars | Amount ($) |
Contribution margin from Jay-rider | $24,000 |
Less: | |
Decreased contribution margin from loss of Jay-flex sales | $42,000 |
Increased Fixed expenses | $5,700 |
Operating income | (23,700) |
Table (3)
The operating loss is $23,700. The new product ‘Jay-rider’ must not be launched as it may reduce the operating income and as well the individual sale of every product.
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Chapter 16 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning