Question

The Ogden Company retails two products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as follows: E (Click the icon to view the budgeted income statement.) Read the requirements. Requirement 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix. Begin by determining the sales mix. For every 2 deluxe unit(s) sold, standard units are sold. * Requirements - X Data Table Total 200,000 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix. 2. Compute the breakeven point in units (a) if only standard carriers are sold and (b) if only deluxe carriers are sold. 3. Suppose 200,000 units are sold but only 25,000 of them are deluxe. Compute the operating income. Compute the breakeven point in units. Compare your answer with the answer to requirement 1. What is the major lesson of this problem? 6,200,000 3,800,000 Standard Carrier Deluxe Carrier Units sold 120,000 80,000 Revenues at $25 and $40 per unit $ 3,000,000 $ 3,200,000 $ Variable costs at $15 and $25 per unit 1,800,000 2,000,000 1,200,000 $ 1.200.000 Contribution margins at $10 and $15 per unit $ Fixed costs Operating income $ 2,400,000 1,275.000 1,125,000 Print Done Print Print Done

Answer 1

Weighted average Contribution Margin per unit = Total contribution margin/Total units

= 2,400,000/200,000

= $12 per unit

Break even point in units = Fixed costs/Contribution margin per unit

= 1,275,000/12

= 106,250 units

2.Only standard are sold = 1,275,000/10 = 127,500 units

Only Deluxe are sold = 1,275,000/15 = 85,000 units

3.Operating income = 175,000*10 + 25,000*15 – 1,275,000 = $850,000

Weighted average contribution margin = 10*175000/200000 + 15*25000/200000 = 10.625

Break even point = 1,275,000/10.625

= 120,000 units

No, different

Sales mix is very important and it determines the weighted average contribution margin and hence the break even point