Question

Change in Sales Mix and Contribution Margin

Head Pops Inc. manufactures two models of solar-powered, noise-canceling headphones: Sun Sound and Ear Bling models. The company is operating at less than full capacity. Market research indicates that 17,500 additional Sun Sound and 19,400 additional Ear Bling headphones could be sold. The operating income by unit of product is as follows:

	Sun Sound Headphones		Ear Bling Headphones
Sales price	$32.30		$50.40
Variable cost of goods sold	(18.10)		(28.20)
Manufacturing margin	$14.20		$22.20
Variable selling and administrative expenses	(6.50)		(10.10)
Contribution margin	$7.70		$12.10
Fixed manufacturing costs	(2.90)		(4.50)
Operating income	$4.80		$7.60

Prepare an analysis indicating the increase or decrease in total profitability if 17,500 additional Sun Sound and 19,400 additional Ear Bling headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per unit answers to two decimal place.

Head Pops Inc.
Analysis
	Sun Sound Headphones	Ear Bling Headphones
Unit volume increase
x Contribution margin per unit	$	$
Increase in profitability	$	$

Answer 1

Ear bling Sun sound HeadPhones Headphones Units Volume Increases x Contribution Margin Per Units Increase in Profitability 17500 19400 7.70 12.10 134750 234740