Question

1) You are a manager for Dan's Juice Barn—a small distributor with 3 juice lines. You have three juices--Apple, Orange, and Pear, with the following information: Г псег Price Unit Cost Last year Demand Apple $2.50 per liter $1.00 per liter 50,000 liters Orange $2.00 per liter $1.00 per liter 250,000 liters Pear $3.00 per liter $2.25 per liter 25,000 liters You have 3 salespeople who are paid $30,000 per year plus 10% commission on sales. You also spend an average of 5% of your total sales per year for promotion (advertising, etc.). Your other fixed costs are $15,000 per month. Answer the following questions: déo What is the contribution margin and markup for each type of juice? What was the profit/loss for last year for the company? If each of your salespeople were assigned to just one juice type (one for Apple, one for Orange and one for Pear), how much would each salesperson have to sell to cover their own fixed expenses (ignoring the other fixed expenses)? How many total liters of juice would you have to sell to break-even given you expect similar ordering this year? Note: this is not a question about break even for each juice—it is a question about the total liters for all juices combined.

Answer 1

Requirement (a)
Computation of Contribution Margin
Particulars	Apple	Orange	Pear
Selling Price (SP)	2.5	2	3
Less: Variable Costs (VC)
Unit Cost	1	1	2.25
Commission Cost (10% of SP)	0.25	0.2	0.3
Promotion Cost (5%of SP)	0.125	0.1	0.15
Total VC	1.375	1.3	2.7
Therefore, Contribution Margin (SP - total VC)	1.125	0.7	0.3
Computation of Markup
Particulars	Apple	Orange	Pear
Selling Price (SP)	2.5	2	3
Less: Unit Cost (UC)	1	1	2.25
Therefore, Mark up (MU)	1.5	1	0.75
Mark up % (MU / UC)	150%	100%	33%

Requirement (b)
Statement of Computation of Total Profit/ Loss to the Company
Particulars	Apple	Orange	Pear	Total
Selling Price (SP) per unit	2.5	2	3
Less: Variable Costs (VC) per unit
Unit Cost	1	1	2.25
Commission Cost (10% of SP)	0.25	0.2	0.3
Promotion Cost (5%of SP)	0.125	0.1	0.15
Total VC per unit	1.375	1.3	2.7
Therefore, Contribution (SP - VC) per unit	1.125	0.7	0.3
Total Number of units Sold	50000	250000	25000
Therefore, Total Contribution	56250	175000	7500	238750
Less: Fixed Costs
Sales Persons Salary				30000
Other Fixed costs (15000 * 12)				180000
Therefore, Profit earned				28750

Requirement (c )
Statement of Computation of how much would each sales person have to sell to cover their own fixed expenses
Particulars	Apple	Orange	Pear
Target = Fixed Expense to be covered by each Sales person (30000 / 3)	10000	10000	10000
Contribution earned per unit	1.125	0.7	0.3
Therefore, Units to be sold to cover the fixed expense (Target / contribution)	8888.889	14285.71	33333.33
Rounded off to	8889	14286	33333

Requirement (d)
Statement of Computation of Breakeven Sales Liters
Particulars	Apple	Orange	Pear	Total
Fixed Costs:
Sales Persons Salary				30000
Other Fixed costs (15000 * 12)				180000
Total Fixed Costs				210000
As it is clearly provided, Similar ordering is expected in the current year as well
Therefore, the entire fixed cost is allocated to each juice type on the basis of sales demand
Sales Demand in liters	50000	250000	25000	325000
Therefore, Allocated Fixed Costs [ (Total Fixed Cost * Sales demand of each juice) / Total Sales demand ]	32307.69	161538.46	16153.85	210000.00
Contribution per unit	1.13	0.70	0.30
Therefore, Breakeven Sales Units (Total Fixed Costs / Contribution per unit)	28717.95	230769.23	53846.15	313333.33

Therefore, total liters of sale to be made to breakeven = 313333 liters