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1.
Calculate the break-even point in sales units for the overall Product E for the current year.
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Sales mix: It refers to the relative distribution of the total sales among the number of products sold by a company. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.
Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:
Determine the break-even point in sales units for the overall Product E.
Fixed cost =$46,800
Contribution margin per unit =$10.40 per unit (3)
Working note (1):
Note: For break-even analysis, the Product-12” Pizza and Product-13” Pizza are considered as the components of one overall company’s Product E.
Determine the selling price per unit of Product E.
Working note (2):
Determine the variable cost per unit of Product E.
Working note (3):
Determine the unit contribution margin of Product E.
Therefore, the break-even point in sales units for the overall Product E for the current year is 4,500 units.
2.
Calculate the break-even sales (units) for Product-12” Pizza and Product-16” Pizza.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Determine the break-even point in sales units:
For Product-12” Pizza
Break-even point in sales units for Product E =4,500 units (refer Part a)
Sales Mix for Product Laptops =30%
For Product-16” Pizza
Break-even point in sales units for Product E =4,500 units (refer Part a)
Sales Mix for Product Tablets =70%
Therefore, the break-even point in sales units for the Product 12” Pizza is 1,350 units and for the Product 16” Pizza is 3,150 units.
3.
Compare the break-even point with that in Part (1).
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
The break-even point calculated in (1) with a sales mix of 50% 12” Pizza and 50% 16” Pizza is 4,680 units. It is more than the break-even point of 4,500 units calculated in Part 1.
The reason for the difference is the sales mix which is allocated at a lower percentage to the 12” Pizza (50%) and 16” Pizza (50%) in the present case. It resulted in the lower contribution margin per unit of $10.00 per unit than in Part 1 ($10.40 per unit). Thus, it increases the break-even point of sales (units) in the present case.
Working note (4):
Determine the break-even point in sales units for the overall Product E.
Fixed cost =$46,800
Contribution margin per unit =$10.00 per unit (7)
Note: For break-even analysis, the Product-12” Pizza and Product-16” Pizza are considered as the components of one overall company’s Product E.
Working note (5):
Determine the selling price per unit of Product E.
Working note (6):
Determine the variable cost per unit of Product E.
Working note (7):
Determine the unit contribution margin of Product E.
Working note (8):
Determine the break-even point in sales units:
For Product-12” Pizza
Break-even point in sales units for Product E =4,680 units (4)
Sales Mix for Product 12” Pizza =50%
Working note (9):
For Product-16” Pizza
Break-even point in sales units for Product E =4,680 units (4)
Sales Mix for Product 16” Pizza =50%
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Chapter 20 Solutions
Financial And Managerial Accounting
- Contribution margin and contribution margin ratio For a recent year, McDonalds (MCD) company-owned restaurants had the following sales and expenses (in millions): Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonalds contribution margin? Round to the nearest tenth of a million (one decimal place). b. What is McDonalds contribution margin ratio? Round to one decimal place. c. How much would operating income increase if same-store sales increased by 800 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the nearest tenth of a million (one decimal place).arrow_forwardWest Island distributes a single product. The companys sales and expenses for the month of June are shown. Using the information presented, answer these questions: A. What is the break-even point in units sold and dollar sales? B. What is the total contribution margin at the break-even point? C. If West Island wants to earn a profit of $21,000, how many units would they have to sell? D. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.arrow_forwardMore-Power Company has projected sales of 75,000 regular sanders and 30,000 mini-sanders for next year. The projected income statement is as follows: Required: 1. Set up the given income statement on a spreadsheet (e.g., ExcelTM). Then, substitute the following sales mixes, and calculate operating income. Be sure to print the results for each sales mix (a through d). 2. Calculate the break-even units for each product for each of the preceding sales mixes.arrow_forward
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- Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 83,700 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows: Sales $4,017,600 Cost of goods sold 1,984,000 Gross profit $2,033,600 Expenses: Selling expenses $992,000 Administrative expenses 992,000 Total expenses 1,984,000 Income from operations $49,600 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $336,000 in yearly sales. The expansion will increase fixed costs by $33,600, but…arrow_forwardDetermine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 83,700 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows: Sales $4,017,600 Cost of goods sold 1,984,000 Gross profit $2,033,600 Expenses: Selling expenses $992,000 Administrative expenses 992,000 Total expenses 1,984,000 Income from operations $49,600 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $336,000 in yearly sales. The expansion will increase fixed costs by $33,600, but…arrow_forwardDetermine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 83,700 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows: Sales $4,017,600 Cost of goods sold 1,984,000 Gross profit $2,033,600 Expenses: Selling expenses $992,000 Administrative expenses 992,000 Total expenses 1,984,000 Income from operations $49,600 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $336,000 in yearly sales. The expansion will increase fixed costs by $33,600, but…arrow_forward
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