Multiple Products, Break-Even Analysis, Operating Leverage, Segmented Income Statements Ironjay, Inc., produces two types of weight-training equipment: the Jay-flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the Jay-flex to sporting goods stores for $200. The free weights sell for $75 per set. The projected income statement for the coming year follows: Sales $600,000 Less: Variable expenses 390,000 Contribution margin $210,000 Less: Fixed expenses 157,500 $52,500 Operating income The owner of Ironjay estimates that 40 percent of the sales revenues will be produced by sales of the Jay-flex, with the remaining 60 percent by free weights. The Jay-flex is also responsible for 40 percent of the variable expenses. Of the fixed expenses, one-third are common to both products, and one-half are directly traceable to the Jay-flex line. Required: 1. Compute the sales revenue that must be earned for Ironjay to break even 2. Compute the number of Jay-flex machines and free weight sets that must be sold for Ironjay to break even machines Jay-flex Free weights sets 3. Compute the degree of operating leverage for Ironjay. Now, assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume? 4. Ironjay is considering adding a new product-the Jay-rider. The Jay-rider is a cross between a rowing machine and a stationary bicycle. For the first year, Ironjay estimates that the Jay-rider will cannibalize 600 units of sales from the Jay-flex. Sales of free weight sets will remain unchanged. The Jay-rider will sell for $180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5,700. Compute the number of Jay-flex machines, free weight sets, and Jay-riders that must be sold for Ironjay to break even Jay-flex machines Free weights sets Jay-rider machines For the coming year, is the addition of the Jay-rider a good idea?
Multiple Products, Break-Even Analysis, Operating Leverage, Segmented Income Statements Ironjay, Inc., produces two types of weight-training equipment: the Jay-flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the Jay-flex to sporting goods stores for $200. The free weights sell for $75 per set. The projected income statement for the coming year follows: Sales $600,000 Less: Variable expenses 390,000 Contribution margin $210,000 Less: Fixed expenses 157,500 $52,500 Operating income The owner of Ironjay estimates that 40 percent of the sales revenues will be produced by sales of the Jay-flex, with the remaining 60 percent by free weights. The Jay-flex is also responsible for 40 percent of the variable expenses. Of the fixed expenses, one-third are common to both products, and one-half are directly traceable to the Jay-flex line. Required: 1. Compute the sales revenue that must be earned for Ironjay to break even 2. Compute the number of Jay-flex machines and free weight sets that must be sold for Ironjay to break even machines Jay-flex Free weights sets 3. Compute the degree of operating leverage for Ironjay. Now, assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume? 4. Ironjay is considering adding a new product-the Jay-rider. The Jay-rider is a cross between a rowing machine and a stationary bicycle. For the first year, Ironjay estimates that the Jay-rider will cannibalize 600 units of sales from the Jay-flex. Sales of free weight sets will remain unchanged. The Jay-rider will sell for $180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5,700. Compute the number of Jay-flex machines, free weight sets, and Jay-riders that must be sold for Ironjay to break even Jay-flex machines Free weights sets Jay-rider machines For the coming year, is the addition of the Jay-rider a good idea?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Multiple Products, Break-Even Analysis, Operating Leverage, Segmented Income Statements
Ironjay, Inc., produces two types of weight-training equipment: the Jay-flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the Jay-flex to sporting goods stores for $200. The free weights sell for $75 per set. The
projected income statement for the coming year follows:
Sales
$600,000
Less: Variable expenses
390,000
Contribution margin
$210,000
Less: Fixed expenses
157,500
$52,500
Operating income
The owner of Ironjay estimates that 40 percent of the sales revenues will be produced by sales of the Jay-flex, with the remaining 60 percent by free weights. The Jay-flex is also responsible for 40 percent of the variable expenses. Of the fixed expenses, one-third are common to both
products, and one-half are directly traceable to the Jay-flex line.
Required:
1. Compute the sales revenue that must be earned for Ironjay to break even
2. Compute the number of Jay-flex machines and free weight sets that must be sold for Ironjay to break even
machines
Jay-flex
Free weights
sets
3. Compute the degree of operating leverage for Ironjay.
Now, assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume?
4. Ironjay is considering adding a new product-the Jay-rider. The Jay-rider is a cross between a rowing machine and a stationary bicycle. For the first year, Ironjay estimates that the Jay-rider will cannibalize 600 units of sales from the Jay-flex. Sales of free weight sets will remain
unchanged. The Jay-rider will sell for $180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5,700. Compute the number of Jay-flex machines, free weight sets, and Jay-riders that must be sold for Ironjay to break even
Jay-flex
machines
Free weights
sets
Jay-rider
machines
For the coming year, is the addition of the Jay-rider a good idea?
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