Answered: Please fix the below scenario to ensure…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Please fix the below scenario to ensure that net income is now zero. It is not zero right now. Please check the contribution for margin calculation.

Also thr assumption 'Aly anticipates that she will sell two chocolate bars for every jelly she sells' should change based on your calculations (your calculations are based on the assumption that she sells two jellies for every chocolate - 1:2

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Aly’s candy store sells two items: Chocolate and jellies. Aly anticipates that she will sell two chocolate bars for every jelly she sells. In other words, for every jelly sold, Aly sells to chocolate bars.
Hence, the ratio of the sales chocolate:jellies = 1:2
Price per unit of chocolate = $50
Price per unit of jellies = $20
Variable cost per unit for chocolate = $25
Variable cost per unit for jellies = $10
Total fixed cost of the store= $45,000
Breakeven sales = Total Fixed Cost/(Weighted Contribution margin)
Weighted contribution margin:

Contribution margin for chocolate:
=50−25
=25
=50-25=25

Contribution margin for jellies:
=25−10
=15
=25-10=15

Weighted contribution margin:
=25×1/3 +15×2/3
=$18.33
=25×13+15×23=$18.33

Breakeven sales = 45,000/18.33
Breakeven sales = 2455 Units

Units of chocolate (2455×1/3)= 818 units
Units of jellies = 1637 units

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