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