Question

2. (25 punts) The Belkin Company has three product lines of coffee mugs-A, B, and C with antribution margins of $7, $5, and $4, respectively. The president foresens sales of 240.000 units in the coming period, consisting of 40,000 units of A, 120,000 units of B, and $10,000 units of C. The company's fixed costs for the period are $552,000. 1. (12 points) What is the company's breakeven point in units, assuming that the given siks mix is maintained? 2. (5 points) If the sales mix is maintained, what is the total contribution margin when 220.000 units are sold? What is the operating income? 3. (5 points) What would operating income be if the company sold 40,000 units of A, 100.000 units of B, and 100,000 units of C? What is the new breakeven point in units if these relationships persist in the next period? 4. (3 points) Comparing the breakeven points in requirements 1 and 3, is it always better for a company to choose the sales mix that yields the lower breakeven point? Explain

Answer 1

Answer with working is given below

Calculation of Weighted Contribution Margin Ratio Total Contribution per unit 80,000 Total Units Sales mix 40,000 16.67% 120,000 50.00% 240,000 100.00% B 33.33% Weighted Contribution Margin | $1.17 $2.50 $1.33 $5.00 AXB 1) Units Total Units at Break even point Total Fixed Cost weighted Contribution margin $552,000 $5.00 110,400 A B C Total Contribution per unit Sales mix Total Units Total Contribution Less: Fixed cost Net Operating Income 16.67% 36,667 $256,667 50.00% 110,000 $550,000 33.33% 73,333 $293,333 100.00% 220,000 $1,100,000 $552,000 $548,000 3) Total Contribution per unit Total Units Total Contribution Less: Fixed cost Net Operating Income 40,000 $280,000 $5 100,000 $500,000 100,000 $400,000 240,000 $1,180,000 $552,000 $628,000 с 16.67% Total 100.00% 41.67% 41.67% Sales mix Weighted Contribution Margin $1.17 $2.08 $1.67 $4.92 Units Total Units at Break even point Total Fixed Cost weighted Contribution margin $552,000 $4.92 112,271 Break even point has increased A B C | SA Contribution per unit Sales mix in 1 Sales mix in 3 16.67% 16.67% 50.00% 41.67% 33.33% 41.67% Since the contribution per unit is higher for Product B lower Weightage to it will increase the break even point Higher contribution per unit with higher sales mix is good for the firm since it will reduce the break even point If lower margin products are having higher sales mix % Break even point will increase