Question

PROBLEM THREE

Safari USA, Inc. sells three types of stuffed animals, elephants, dogs, and bears. The following information is available:

	Elephants	Dogs	Bears	Total
Sales Volume	40,000	20,000	80,000
Selling Price	$14	$20	$30
Variable cost per unit	8	10	25
Total fixed costs				$400,000

REQUIRED (show all supporting calculations):

1. What is the breakeven point for Safari USA?
2. Would you recommend promoting the change in product mix to 1 to 4 to 2 of elephants, dogs, and bears? Why?
3. An EXECUTIVE SUMMARY IS REQUIRED.

Answer 1

The answer has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

BLU H Answer Part 1) Firstly we have to calculate the weights for each product and weighted average cost, selling price and contributionmargin Total Weighted Particular Elephant Dogs Bears Average Cost Sale Volume (A) 40000 20000 80000 Weights (A/20000) Selling Price Weighted average selling price (selling price * weights/(2+1+4) Variable cost Weighted average variable cost (variable cost * weights/(2+1+4)) 2.29 1.43 14.29 1 Weighted average contribution margin 30 17.14 3 Break even point for safaria USA (in Units) = Fixed cost / weighted average contribution margin = 400000 /6 5 = 66666.67 Units B Break even point in sales dollar = break even units *weighted average selling price = 66666.67 * 24 1 = $ 1600000

23 Thus the final answer 24 Break even point in units = 66666.67 units 25 Break even point in dollars = $ 1600000 27 Part 2) 28 In case of change of product mix we have to calculate the weighted average contribution margin for revised product mix 20 Total Weighted 30 Particular Elephant Dogs Bears Average Cost 31 Weights (A/20000) B2 Selling Price 30 Weighted average selling price (selling 33 price * weights/(2+1+4) 11.43 8.57 34 Variable cost 10 Weighted average variable cost 35 (variable cost * weights/(2+1+4)) 1.14 5.71 7.14 36 Weighted average contribution margin ition margin 37 Revised break even point = fixed cost / revised weighted average contribution margin 38 = 400000/8 39 = 50000 Units 25 41 The answer is Yes, we would recommend promoting the change in product mix because, the weighted average contributionmargin has 43 increased due to which break even point has decreased which is good from corporation prospective.