Question

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches" and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,112,100. (a) What is the company's break-even point in total sales dollars? At the break-even point, how much of the company's sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to O decimal places, e.g. 2,510.) Total break-even sales $ 32780250 Sale of mail pouches and small boxes 26224200 AA $ $ Sale of non-standard boxes 6556050 (b) The company's management would like to hold its fixed costs constant but shift its sales mix so that 60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company's break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to O decimal places, e.g. 2,510.) Total break-even sales 26224200 Sale of mail pouches and small boxes AAA 10489680 Sale of non-standardized boxes 3933630

Answer 1

Break even sales = Fixed costs/Weighted average contribution margin ratio
a
Weighted average contribution margin ratio	0.30	=(80%*20%)+(20%*70%)
Total break-even sales	43707000	=13112100/0.30
Sale of mail pouches and small boxes	34965600	=43707000*80%
Sale of non-standard boxes	8741400	=43707000*20%
b
Weighted average contribution margin ratio	0.50	=(40%*20%)+(60%*70%)
Total break-even sales	26224200	=13112100/0.50
Sale of mail pouches and small boxes	10489680	=26224200*40%
Sale of non-standard boxes	15734520	=26224200*60%