Question

On-the-Go, Inc., produces two models of traveling cases for laptop computers—the Programmer and the Executive. The bags have the following characteristics.

	Programmer			Executive
Selling price per bag	$	60		$	90
Variable cost per bag	$	20		$	30
Expected sales (bags) per year		8,000			12,000

The total fixed costs per year for the company are $668,000.

Required:

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break-even point, compute the break-even point.

c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go?

Answer 1

1	anticipated level of profits for the expected sales volumes
			Programmer	Executive	Total
A	Expected Sales per year	$	8,000	12,000	20,000
B	Selling price per bag	$	60	90
C	Total Sales (A*B)	$	4,80,000	10,80,000	15,60,000
D	Variable Cost per bag	$	20	30
E	Total Variable Cost (A*D)	$	1,60,000	3,60,000	5,20,000
F	Fixed Cost	$			6,68,000
	Proft (C-E-F)	$			3,72,000
2	Assuming that the product mix is the same at the break-even point, compute the break-even point.
			Programmer	Executive	Total
A	Selling ratio is		2	3	5
B	Selling price per bag	$	60	90
C	Variable Cost per bag	$	20	30
D	Profit Per bag (B-C)	$	40	60
E	Total Profit (A*D)	$	80	180	260
F	Weighted Average (E/A)				52
G	Fixed Cost	$			6,68,000
H	Break Even Point				12,846
	So BEP for both the product is		(12846/5)*2	(12846/5)*3
	BEP Unit		5138	7708	12846
3	f the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go?
			Programmer	Executive	Total
A	Selling ratio is		9	1	10
B	Selling price per bag	$	60	90
C	Variable Cost per bag	$	20	30
D	Profit Per bag (B-C)	$	40	60
E	Total Profit (A*D)	$	360	60	420
F	Weighted Average (E/A)				42
G	Fixed Cost	$			6,68,000
H	Break Even Point				15,905
	So BEP for both the product is		(15905/9)*10	(15905/1)*10
	BEP Unit		14315	1590