Question

Husky Coffee makes three single cup coffee brewing machines for home and office that use specially packaged portions of coffee, tea, and hot chocolate that can be purchased on-line from Husky Coffee or through specialty coffee shops. Data for the three models for the last fiscal year are as follows: Homeowner OfficeBasic OfficeDeluxe 30,000 $ 200 140 $ 60 Sales Volume (units) Unit Selling Price Variable Cost per unit | Contribution Margin per unit 12,000 $ 150 120 $ 30 6,000 $ 300 180 $ 120 Fixed costs are $1,000,000 in manufacturing costs and $500,000 in selling, administration, and general costs. The company faces serious competition and and believes it has no room to increase is selling prices. Required 1. Assuming the existing sales mix, calculate the company's breakeven point in sales dollars and number of units. Your answer should identify the number of Homeowner, OfficeBasic, and OfficeDeluxe units. (4 pts) 2. Assuming the existing sales mix, calculate the sales revenue required to earn net income of $1,125,000 assuming a 25% income tax rate. (4 pts) What impact would doubling the number of OfficeBasic units sold next year have on the 3. overall breakeven point in sales dollars? (Assume there would be no change in the number of Homeowner or OfficeDeluxe units sold, nor would fixed costs change). (5 pts) The next two questions are independent of each other: The company is considering a new advertising campaign that will cost $180,000 4. next year. How many addition units of each product must be sold to justify the new campaign (assuming no change in the sales mix). (5 pts) Husky Coffee is considering adding a new product – the OfficePlus. OfficePlus will sell for $250 per unit and have variable costs of $160 per unit. Additionally, there would be a $102,000 increase in fixed costs. Introducing OfficePlus will reduce annual sales of OfficeBasic and OfficeDeluxe by 10% each but would have no impact on sales of Homeowner. How many units of OfficePlus would need to be sold to justify adding it to Husky's product line? (7 pts) 5.

Answer 1

	HomeOwner	OfficeBasic	Office Deluxe
Selling price	150	200	300
Contribution Margin per unit	30	60	120
Sales Volume	12000	30000	6000	48000
Weighted average Sales Price	200
Weighted average CM	60
Weighted average CM ratio	30%
1.Break even point in Sales Dollars = Fixed costs/Weighted average CM Ratio	5,000,000
Units	25,000
HomeOwner	6,250
OfficeBasic	15,625
OfficedDeluxe	3,125
2.Required revenue	10,000,000
	HomeOwner	OfficeBasic	Office Deluxe
Selling price	150	200	300
Contribution Margin per unit	30	60	120
Sales Volume	12000	30000	6000	48000
Weighted average Sales Price	200
Weighted average CM	60
Weighted average CM ratio	30%
3.Break even in Sales Dollars	5,000,000
No change as weighted average CM% will remain the same
4.Required increase in units	3000
HomeOwner	750
OfficeBasic	1875
OfficedDeluxe	375
5. Units required = (Increase In fixed costs+lost contribution margin)/CM per unit of new product
=(102000+60*3000+120*600)/(250-160)
3933.333333	units

Home Owner 150 30 12000 =B2*34/E4+C2*C4/E4+D2*D4/E4 =B3*B4/E4+C3*C4/E4+D3*D4/E4 =B6/B5 OfficeBasic Office Deluxe 200 300 60120 30000 6000 =SUM(B4:04) 1. 2 Selling price 3 Contribution Margin per unit 4 Sales Volume 5 Weighted average Sales Price 6 Weighted average CM 7 Weighted average CM ratio 8 10 1.Break even point in Sales Dollars = Fixed costs/Weighted average CM Ratio 11 Units 12 Home Owner 13 OfficeBasic 14 Officed Deluxe =(1000000+500000)/B7 =(1000000+500000)/B6 =B11*B4/E4 =B11*C4/E4 =B11*D4/E4 15 =(1125000/75% + 1000000+500000)/B7 16 2.Required revenue 17 18 19 Selling price 20 Contribution Margin per unit 21 Sales Volume 22 Weighted average Sales Price 23 Weighted average CM 24 Weighted average CM ratio Home Owner 150 30 12000 =B19*B21/E21+C19*C21/E21+D19*D21/E21 =B20*B21/E21+C20*С21/E21+D20*D21/E21 =B23/B22 OfficeBasic Office Deluxe 200 120 30000 6000 =SUM(B21:D21) | 26 27 3.Break even in Sales Dollars 28 No change as weighted average CM% will remain the same =(1000000+500000)/B24 29 30 31 4.Required increase in units 32 Home Owner 33 OfficeBasic 34 Officed Deluxe =180000/B23 =B31*B21/E21 =B31*C21/E21 =B31*D21/E21 35 36 37 5. Units required = (Increase In fixed costs+lost contribution margin)/CM per unit of new product