Question

The Coughlin Company retails two products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as follows: (Click the icon to view the budgeted income statement.) Read the requirements. Requirement 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix. i Requirements Begin by determining the sales mix. For every 1 deluxe unit(s) sold, standard units are sold. 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix. 2. Compute the breakeven point in units (a) if only standard carriers are sold and (b) if only deluxe carriers are sold. 3. Suppose 250,000 units are sold but only 25,000 of them are deluxe. Compute the operating income. Compute the breakeven point in units. Compare your answer with the answer to requirement 1. What is the major lesson of this problem? Print Done i Data Table Standard Carrier Deluxe Carrier Total 250,000 200,000 50,000 Units sold Revenues at $25 and $45 per unit 5,000,000 $ 3,000,000 2,250,000 $ 1,250,000 7,250,000 4,250,000 Variable costs at $15 and $25 per unit 2,000,000 $ 1,000,000 Contribution margins at $10 and $20 per unit Fixed costs 3,000,000 2,475,000 525,000 $ Operating income Print Done

Answer 1

1. For every 1 deluxe unit sold, 4 (i.e. 200000 / 50000) standard units are sold
Break even point = Fixed Cost / Weighted average contribution margin per unit
= $2475000 / 12 = 206250 units
Weighted average contribution margin = $10 x 80% + $20 x 20% = $12 per unit

Break even point
Standard Units = 206250 x 80% = 165000 units
Deluxe units = 206250 x 20% = 41250 units

2.
(a) Break even point = Fixed Cost / Contribution margin for Standard carrier per unit
= $2475000 / 10 = 247500 units

(b) Break even point = Fixed Cost / Contribution margin for Standard carrier per unit
= $2475000 / 20 = 123750 units

3.

	Standard	Deluxe	Total
Units sold	225000	25000	250000
Revenue	$          5,625,000	$      1,125,000	$          6,750,000
Variable cost	$          3,375,000	$          625,000	$          4,000,000
Contribution Margin	$          2,250,000	$          500,000	$          2,750,000
Fixed Costs			$          2,475,000
Operating Income			$             275,000

For every 1 deluxe unit sold, 9 (i.e. 225000 / 25000) standard units are sold
Break even point = Fixed Cost / Weighted average contribution margin per unit
= $2475000 / 11 = 225000 units
Weighted average contribution margin = $10 x 90% + $20 x 10% = $11 per unit

Break even point
Standard Units = 225000 x 90% = 202500 units
Deluxe units = 225000 x 10% = 22500 units

Since unit sales of Standard carrier increases in ratio of Deluxe carrier, break even point increases