Assume Annie’s Homemade divides its total annual sales of $650,000 into two sales channels: in-store sales and mobile sales. The in-store sales comprise 65% of total sales and the mobile sales account for 35% of total sales. The variable expense ratio is 30% for in-store sales and 40% for mobile sales. Variable expenses are a higher percentage of sales in the mobile sales segment because of various factors, such as price discounts offered to high-volume customers, packaging costs, and incremental fuel costs. Of the company’s total annual fixed expenses of $240,000, $10,000 is traceable to in-store sales, $15,000 is traceable to mobile sales, and the remainder are common fixed expenses. The common fixed expenses—the three largest of which include employee salaries ($120,000), equipment depreciation ($40,000), and store rent ($36,000)—would be avoidable only if the company went out of business. Required: Prepare a contribution format segmented income statement that divides Annie’s Homemade’s total sales into two sales channels: in-store sales and mobile sales. For the mobile sales segment: a. What is the break-even point in dollar sales? b. Assuming an average selling price of $4.50 per serving, what is the break-even point in number of servings (round your answer up to the nearest whole number)? For the in-store segment: a. What is the break-even point in dollar sales (rounded to the nearest dollar)? b. If the in-store segment’s unit sales grow by 5% and all else holds constant, then what would be the impact on profits (rounded to the nearest dollar)?
Assume Annie’s Homemade divides its total annual sales of $650,000 into two sales channels: in-store sales and mobile sales. The in-store sales comprise 65% of total sales and the mobile sales account for 35% of total sales. The variable expense ratio is 30% for in-store sales and 40% for mobile sales. Variable expenses are a higher percentage of sales in the mobile sales segment because of various factors, such as price discounts offered to high-volume customers, packaging costs, and incremental fuel costs. Of the company’s total annual fixed expenses of $240,000, $10,000 is traceable to in-store sales, $15,000 is traceable to mobile sales, and the remainder are common fixed expenses. The common fixed expenses—the three largest of which include employee salaries ($120,000), equipment depreciation ($40,000), and store rent ($36,000)—would be avoidable only if the company went out of business. Required: Prepare a contribution format segmented income statement that divides Annie’s Homemade’s total sales into two sales channels: in-store sales and mobile sales. For the mobile sales segment: a. What is the break-even point in dollar sales? b. Assuming an average selling price of $4.50 per serving, what is the break-even point in number of servings (round your answer up to the nearest whole number)? For the in-store segment: a. What is the break-even point in dollar sales (rounded to the nearest dollar)? b. If the in-store segment’s unit sales grow by 5% and all else holds constant, then what would be the impact on profits (rounded to the nearest dollar)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
AH 6-3 Contribution Format Segmented Income Statements LO 6-4
Assume Annie’s Homemade divides its total annual sales of $650,000 into two sales channels: in-store sales and mobile sales. The in-store sales comprise 65% of total sales and the mobile sales account for 35% of total sales. The variable expense ratio is 30% for in-store sales and 40% for mobile sales. Variable expenses are a higher percentage of sales in the mobile sales segment because of various factors, such as price discounts offered to high-volume customers, packaging costs, and incremental fuel costs. Of the company’s total annual fixed expenses of $240,000, $10,000 is traceable to in-store sales, $15,000 is traceable to mobile sales, and the remainder are common fixed expenses. The common fixed expenses—the three largest of which include employee salaries ($120,000), equipment depreciation ($40,000), and store rent ($36,000)—would be avoidable only if the company went out of business.
Required:
Prepare a contribution format segmented income statement that divides Annie’s Homemade’s total sales into two sales channels: in-store sales and mobile sales.
For the mobile sales segment:
a. What is the break-even point in dollar sales?
b. Assuming an average selling price of $4.50 per serving, what is the break-even point in number of servings (round your answer up to the nearest whole number)?
For the in-store segment:
a. What is the break-even point in dollar sales (rounded to the nearest dollar)?
b. If the in-store segment’s unit sales grow by 5% and all else holds constant, then what would be the impact on profits (rounded to the nearest dollar)?
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