Question

The Alves 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. Begin by determining the sales mix. For every 1 deluxe unit(s) sold, 4 standard units are sold. Determine the formula used to calculate the breakeven point when there is more than one product sold. Then, enter the amounts in the formula to calculate the breakeven point. Fixed costs Contribution margin per bundle - Breakeven point in bundles 32,500 S 1,300,000 S 40 The breakeven point is standard units and deluxe units. Requirements Data Table 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 220,000 units are sold but only 22,000 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? Standard Carrier Deluxe Carrier 176,000 44,000 Total 220.000 Units sold S 3,520,000 S 2.640.000 1,628,000 S 5,148,000 748,000 3,388,000 $ 880,000 S 880,000 Print Done Revenues at $20 and $37 per unit Variable costs at $15 and $17 per unit Contribution margins at $5 and $20 per unit 5 $ Fixed costs Operating income 1.760.000 1,300,000 S 450,000 Enter ? Print Done Clear All Check Answer rer

Answer 1

1.
Weighted average selling price per unit = ($20 × 4/5) + ($37 × 1/5) = $16 + $7.40 = $23.40

Weighted average variable expense per unit = ($15 × 4/5) + ($17 × 1/5) = $12 + $3.40 = $15.40

Weighted average contribution margin per unit = $23.40 - $15.40 = $8

Formula : Fixed costs ÷ Weighted average contribution margin per bundle = Break even point in bundle
= $1,300,000 ÷ $8 = 162,500 bundles

Standard units = 162,500 × 4/5 = 130,000 units
Deluxe units = 162,500 × 1/5 = 32,500 units
The break even point is 130,000 standard units and 32,500 Deluxe units

2. Compute break even point:

a) If only standard carriers are sold:

Fixed costs = $1,300,000
Contribution margin per unit = $5

Break even point = Fixed costs /Contribution margin per unit = $1,300,000 / $5 = 260,000 bundles

b) If only standard carriers are sold:

Fixed costs = $1,300,000
Contribution margin per unit = $20

Break even point = Fixed costs /Contribution margin per unit = $1,300,000 / $20 = 65,000 bundles

3.

Units sold Revenues at $20 and $37 per unit Variable costs at $15 and $17 per unit Contribution margin at $5 and $20 per unit Fixed costs Operating income Standard Carrier Deluxe Carrier 198,000 22,000 $3,960,000 $814,000 $2,970,000 $374,000 $990,000 $440,000 Total 220,000 $4,774,000 3,344,000 $1,430,000 $1,300,000 $130,000

Total units sold = 220,000 bundles

Deluxe = 22,000 bundles
Standard = 220,000 - 22,000 = 198,000 units

Sales mix = For every 1 deluxe unit sold, 9 standard units are sold.

(22,000 : 198,000 = 1 : 9)

Break even point in units:

Weighted average selling price per unit = ($20 × 9/10) + ($37 × 1/10) = $18 + $3.70 = $21.70

Weighted average variable expense per unit = ($15 × 9/10) + ($17 × 1/10) = $13.50 + $1.70 = $15.20

Weighted average contribution margin per unit = $21.70 - $15.20 = $6.50

Break even point in bundle = Fixed costs ÷ Weighted average contribution margin per bundle =
= $1,300,000 ÷ $6.50 = 200,000 bundles

Standard units = 200,000 × 9/10 = 180,000 units
Deluxe units = 200,000 × 1/10 = 20,000 units
The break even point is 180,000 standard units and 20,000 Deluxe units.

The major lesson of this problem is that changes in the sales mix change breakeven points and operating incomes. In the earlier case (1) the sales mix was 1 deluxe units and 4 standard units. That time the break even point in was only 162,500 units and operating income was $460,000. Now the sales mix changed to 1 deluxe units and 9 standard units. It increased the break even point and decreased the operating income. The break even point now is 200,000 units and operating income was $130,000.