Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income Kenno Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows: Sales Squares $300,000 Circles $2,500,000 Total $2,800,000 Less: Variable expenses 100,000 500,000 Contribution margin 200,000 2,000,000 600,000 2,200,000 Less: Direct fixed expenses 28,000 1,500,000 1,528,000 Product margin $172,000 $500,000 $672,000 Less: Common fixed expenses 100,000 Operating income $572,000 The selling prices are $30 for squares and $50 for circles. Required: 1. Compute the number of units of each product that must be sold for Kenno Company to break even. Squares Circles 7,400 units 37,000 units 2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Compute the number of units of each product that must be sold for Kenno Company to break even. Round your answers to the nearest whole number. Squares Circles 18,784 X units 31,308 X units 3. Refer to the original data. Suppose that Kenno can increase the sales of squares with increased advertising. The extra advertising would cost an additional $245,000, and some of the potential purchasers of circles would switch to squares. In total, sales of squares would increase by 25,000 units, and sales of circles would decrease by 5,000 units. Would Kenno be better off with this strategy? If so, give the amount of increase in income. 55,000 ✓ Yes
Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income Kenno Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows: Sales Squares $300,000 Circles $2,500,000 Total $2,800,000 Less: Variable expenses 100,000 500,000 Contribution margin 200,000 2,000,000 600,000 2,200,000 Less: Direct fixed expenses 28,000 1,500,000 1,528,000 Product margin $172,000 $500,000 $672,000 Less: Common fixed expenses 100,000 Operating income $572,000 The selling prices are $30 for squares and $50 for circles. Required: 1. Compute the number of units of each product that must be sold for Kenno Company to break even. Squares Circles 7,400 units 37,000 units 2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Compute the number of units of each product that must be sold for Kenno Company to break even. Round your answers to the nearest whole number. Squares Circles 18,784 X units 31,308 X units 3. Refer to the original data. Suppose that Kenno can increase the sales of squares with increased advertising. The extra advertising would cost an additional $245,000, and some of the potential purchasers of circles would switch to squares. In total, sales of squares would increase by 25,000 units, and sales of circles would decrease by 5,000 units. Would Kenno be better off with this strategy? If so, give the amount of increase in income. 55,000 ✓ Yes
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income
Kenno Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows:
Sales
Squares
$300,000
Circles
$2,500,000
Total
$2,800,000
Less: Variable expenses
100,000
500,000
Contribution margin
200,000
2,000,000
600,000
2,200,000
Less: Direct fixed expenses
28,000
1,500,000
1,528,000
Product margin
$172,000
$500,000
$672,000
Less: Common fixed expenses
100,000
Operating income
$572,000
The selling prices are $30 for squares and $50 for circles.
Required:
1. Compute the number of units of each product that must be sold for Kenno Company to break even.
Squares
Circles
7,400 units
37,000 units
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Compute the number of units of each product that must be sold for Kenno Company to break even. Round your
answers to the nearest whole number.
Squares
Circles
18,784 X units
31,308 X units
3. Refer to the original data. Suppose that Kenno can increase the sales of squares with increased advertising. The extra advertising would cost an additional $245,000, and some of the potential purchasers of circles would switch to squares. In
total, sales of squares would increase by 25,000 units, and sales of circles would decrease by 5,000 units. Would Kenno be better off with this strategy? If so, give the amount of increase in income.
55,000 ✓
Yes
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