Question

Keener produces two products: regular boomerangs and premium boomerangs. Last month 1,200 units of regular and 2,400 units of premium were produced and sold. Average prices and costs per unit for the month are displayed here:

		Regular		Premium
Selling price		$22.15		$45.30
Variable costs		4.31		6.91
Product line fixed costs		8.17		24.92
Corporate fixed costs		5.62		5.62
Operating earnings		$4.05		$7.85

Product line fixed costs can be avoided if the product line is dropped. Corporate fixed costs can be avoided only if the firm goes out of business entirely. You may want to use a spreadsheet to perform calculations.

1) What is the overall corporate breakeven in total revenue and for each product, assuming that the sales mix is the same as last month’s? (Round weighted average contribuition margin percentage to 2 decimal places, e.g. 15.26% and final answers to 0 decimal places, e.g. 5,125.)

2.

What is the breakeven in revenues for regular boomerangs, ignoring corporate fixed costs?

Answer 1

	Regular	Premium	Total
Selling price	$22.15	$45.30
Variable costs	4.31	6.91
Contribution Margin per Unit	$17.84	$38.39
Contribution Margin Ratio	0.805417607	0.847461369
Sales Mix	1	2	3
Contribution Margin	$17.84	$76.78	$94.62
Weighted average contribution margin			$31.54
Weighted average sales price			$37.58
Weighted average contribution margin ratio			83.92%
Overall break even revenue = Total fixed costs/Weighted average contribution margin ratio
=(13.79*1200+30.54*2400)/83.92%
=$107,059.1039
i.e. $107,059
2.Break even for regular = 8.17*1200/80.54%
=$12,172.83