Question

Problem 5-28 Sales Mix; Commission Structure; Multiproduct Break-Even Analysis (LO5-9) Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The com them to retail department stores throughout the country. The Standard set sells for $82, and the Deluxe set sells for $97. The variable expenses associated with each set are given below. Variable production costs Sales commissions (268 of sales price) Standard Deluxe $26.00 41.00 $ 21.32 $ 25.22 The company's fixed expenses each month are: Advertising Depreciation Ministrative $116,000 $ 25,000 $ 68,500 Mary Parsons, the financial vice president, watches sales commissions carefully and has noted that they have risen steadily over the last year. For this reason, she was shocked to find that even though sales have increased, profits for the current month-May-are down substantially from April. Sales, in sets, for the last two months are given below: April Standard Deluxe 5,100 3,100 2,100 6, 100 Total 8.200 8.200 May Required: 1-a. Prepare contribution format income statements for April 1-b. Prepare contribution format income statements for May. 3-a. Compute the break-even point in dollar sales for April 3-b. Would the break-even point in May be higher or lower than the break-even point in April? Complete this question by entering your answers in the tabs below.

Answer 1

Part 1 A

Carbex Inc. Income statement for April
	Standard	Deluxe	Total
	Amount	%	Amount	%	Amount	%
Sales (82*5100); (97*3100)	418200	100.0%	300700	100.0%	718900	100.0%
Variable Expenses:
Production (26*5100); (41*3100)	132600	31.7%	127100	42.3%	259700	36.1%
Sales Commission (21.32*5100); (25.22*3100)	108732	26.0%	78182	26.0%	186914	26.0%
Total variable expenses	241332	57.7%	205282	68.3%	446614	62.1%
Contribution margin	176868	42.3%	95418	31.7%	272286	37.9%
Fixed expenses:
Advertising					116000
Depreciation					25000
Administrative					68500
Total fixed expenses					209500
Net operating income					$62786

Part 1 B

Carbex Inc. Income statement for May
	Standard	Deluxe	Total
	Amount	%	Amount	%	Amount	%
Sales (82*2100); (97*6100)	172200	100.0%	591700	100.0%	763900	100.0%
Variable Expenses:
Production (26*2100); (41*6100)	54600	31.7%	250100	42.3%	304700	39.9%
Sales Commission (21.32*2100); (25.22*6100)	44772	26.0%	153842	26.0%	198614	26.0%
Total variable expenses	99372	57.7%	403942	68.3%	503314	65.9%
Contribution margin	72828	42.3%	187758	31.7%	260586	34.1%
Fixed expenses:
Advertising					116000
Depreciation					25000
Administrative					68500
Total fixed expenses					209500
Net operating income					$51086

Part 3 A

Dollar sales to break even = Fixed expenses / CM ratio =209500/37.9% = $552770

Part 3 B

Higher

The breakeven point in May be higher than breakeven point in April because the company’s overall CM ratio has gone down,