Question

Sundial, Inc., produces two models of sunglasses—AU and NZ. The sunglasses have the following characteristics. AU NZ Selling price per unit $ 500 $ 500 Variable cost per unit $ 200 $ 250 Expected units sold per year 40,000 60,000 The total fixed costs per year for the company are $7,830,000. 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 four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Answer 1

solutions AU $ 500 Teoticulars sales price (A) variable cost per unit (B) Contsibution c= (A-B) Units (6) Total contribution CAD INZ $ 500 $ 250 a $ 250 60000 is ooooo $300 uoooo | 12000000 Total company contribution = AU+NZ = 12000000 + 15000 000 =$27000 000 Fixed cost = $ 7830000 - $ 19170 000 Anticipated level of profit $ 19170000.

Fixed cost = $ 7820000 Total units of Au and NZ= = weight of Au = 40000 4oooot 60000 100000 0.4 100o0o = weight of Na= 6oooo = 0.6 TDOOOO weighted average contribution margin per unit (0-40 x 300) + (0.60x250) - 1204 150 = $ 270 Breaks everpoint - & 7830000 970 - 29000 units Au produce 290007, 0.4 = 11600 units Na produce 29000 x06 =17 uoo units

Sunglasses Sunglasses Au= alz= upair for each pair of NZ 1 pair for 4 pair of Au. pairs, Total weight will be = ut = 5 weight of nu= uls = 0.8 weight of N2= 1/5 = 0.2 weighted average contribution margin per unit = (0.88 300) + (0.2x250) = 240 + 50 = $ 290 Break even point = 1830600 290 2 2544g units. New break even point = asuug units. Au will produce = 25449 40 8 = 20360 units az will produe = 25449x0.2= 5089 units.