Question

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and...

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs.

Selling Price
per Case
Variable Cost
per Case
Fixed Cost
per Month
Variety 1 $ 4 $ 3
Variety 2 6 4
Variety 3 11 7
Entire firm $ 46,400

The sales mix (in cases) is 50 percent Variety 1, 25 percent Variety 2, and 25 percent Variety 3.

Required:

a. At what sales revenue per month does the company break even?

b. Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $41,795 after taxes assuming the same sales mix?

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Answer #1
a)
Contrubution margin per unit
Variety 1 Variety 2 Variety 3
Selling price 4 6 11
Less: Variable cost 3 4 7
Contribution Margin 1 2 4
Contrbution Margin per sales mix =(1*0.50)+(2*0.25) +(4*0.25)
=$2
Break Even Point In Sales Mix = Fixed cost / contribution margin per sales mix
=$46400/2
=23200 Sales Mix
Units Selling price Revenue
Variety 1 (23200*0.5) 11600 4 $            46,400
Variety 2(23200*0.25) 5800 6 $            34,800
Variety 3 (23200*0.25) 5800 11 $            63,800
Break Even Point Revenue $        1,45,000
b) After Tax Income $        41,795
Before Tax Income $        64,300
(41795/0.65)
Sales Mix = (Desired Profit +Fixed cost) / contribution margin per sales mix
=($64300+46400)/2
=55350
Units Selling price Revenue
Variety 1 (55350*0.5) 27675 4 $        1,10,700
Variety 2(55350*0.25) 13837.5 6 $            83,025
Variety 3 (55350*0.25) 13837.5 11 $        1,52,213
Required Revenue $        3,45,938
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