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. 90 Selling price per bag Variable cost per bag Expected sales (bags) per year Programmer Executive $ 60 $ 30 30 8,000 12,000 The total fixed costs per year for the company are $675,000. 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) Current profit

	Programmer	Executive	Total
Sales	8000*60 = 480000	12000*90 = 1080000	1560000
Variable cost	8000*30 = 240000	12000*30 = 360000	600000
Contribution margin	240000	720000	960000
Fixed cost			675000
Net income			285000

2) Weighted average contribution margin per unit = (30*40%+60*60%) = 48

Break even unit = 675000/48 = 14062.50 Units

Programmer unit = 14062.50*40% = 5625 Units

Executive unit = 14062.50*60% = 8437.50 Units

3) Weighted average contribution margin per unit = (30*60%+60*40%) = 42

Break even unit = 675000/42 = 16071 Units

Programmer units = 16071*60% = 9643

Executive unit = 6428 Units