Question

QUESTION 2 (15 Marks) Sonop Company manufactures furniture in the Northen Subhurbs of Cape Town. The company prepared the following budget for the coming year:

Product A Product B Product C Total Sales 85714 1000000 177777

Variable exp. 25714 800000 97777

Contrib. mar. 60000 200000 80000

Fixed exp. 255000 Net income 85000

the budget assumes the sale of 20 000 units of A, 100 000 units of B, and 80 000 units of C.

REQUIRED: What is the company’s breakeven point given the sales mix above?

If the budgeted sales mix is maintained, what is the total contribution margin and net income if 300 000 units are sold? 10

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

A G 1 Answer Part 1) 2 Firstly we have to calculate the weighted average contribution magin of the company 3 4weighted average contribution margin of Product A Product B +Product C 5((60000/20000)*20000/200000}+({200000/100000)*100000/200000)+({80000/80000) *80000/200000) 6 =.03 +1 +.04 $1.7 7 8 The break even point in units fixed cost/ weighted average contribution margin 9255000/1.7 10 = 150000 Units 11 12 Thus the Break even units of each Product Product A Product B Product C Total 13 Break even units 14 15000 75000 60000 150000 15 16 Part 2) 17 Total Contribution margin at 300000 Units 18 no. of units weighted average contribution 19 300000*1.7 20$ 510000 21 22 Thus the contribution margin at 300000 units $ 510000 23 24 Net Income total contribution fixed cost 25 510000-255000 26 S255000 27 28 Thus the net income $ 255000