Question

On-the-Go, Inc., produces two models of traveling cases for laptop computers: the Programmer and the Executive. The bags have the following characteristics:

	Programmer			Executive
Selling price per bag	$	60		$	90
Variable cost per bag	$	30		$	30
Expected sales (bags) per year		8,000			12,000

The total fixed costs per year for the company are $665,000.

Required:

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break-even point, compute the break-even point. (Round your final answer up to the nearest whole unit.)

c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go? (Round your final answer up to the nearest whole unit.)

References

Answer 1

Answers

• All working forms part of the answer
• Requirement ‘a’

	Programmer	Executive	Total
Sale price per bag	$60	$90
Variable cost per bag	$30	$30
Contribution margin per bag	$30	$60
No. of bags	8,000	12,000
Total Contribution margin	$240,000	$720,000	$960,000
Total Fixed Cost			$665,000
Net Income = Profits			$295,000

• Requirement ‘b’

--Working

Working		Programmer	Executive
A	Sale price per pag	$60	$90
B	Variable cost per bag	$30	$30
C = A - B	Contribution margin per bag	$30	$60
D	No. of bags	8,000	12,000
E = D/20000 bags	Sales Mix %	40%	60%
F = C x E	Weighted Average contribution margin	$                   12.00	$                 36.00

--Answer

A	Total Fixed Cost	$        665,000.00
B = $12 + $ 36	Weighted Average contribution margin	$                   48.00
C = A/B	Break Even point in no. of bags	13,854

• Requirement ‘c’

--Working

Working		Programmer	Executive
A	Sale price per pag	$60	$90
B	Variable cost per bag	$30	$30
C = A - B	Contribution margin per bag	$30	$60
D	No. of bags	9	1
E = D/10	Sales Mix %	90%	1%
F = C x E	Weighted Average contribution margin	$                   27.00	$                    0.60

--Answer

A	Total Fixed Cost	$        665,000.00
B = 27 + 0.6	Weighted Average contribution margin	$                   27.60
C = A/B	Break Even point in no. of bags	24,094