Question

Show ALL calculations to receive partial credit!! (a) Calculate the breakeven point in units for each of the products assuming a 4:3 sales mix. (b) Calculate the breakeven point in units for each of the products assuming a 3:4 sales mix. JAG Radio Supply sells only two products, Product X and Product Y. Selling price Variable cost per unit Total fixed costs Product Product Y $25 545 $20 Total Required: $35 $350,000 [10 points) [11 points) (C) Assuming sales are greater than the breakeven number of units for each product, would the move from a 4:3 sales mix to a 3:4 sales mix result in an increase or decrease in operating profit? Why? [4 points]

Answer 1

Answer:

JAG Radio Supply sells two products, Product X and Product Y.

Product X

1) Selling Price/Unit = $25

2) Variable Cost/Unit = $20

3) Hence, Contribution/Unit =$25 (-) $20 = $5

Product Y

1) Selling Price/Unit = $45

2) Variable Cost/Unit = $35

3) Hence, Contribution/Unit =$45 (-) $35 = $10

Total Fixed Cost = $350,000

Question - A

a) Sales Mix is 4:3

b) Hence, total contribution/unit = $5 X 4 + $10 X 3 = $50

c) Breakeven Points in units = Fixed Cost/Contribution per unit = $350,000/$50 = 7,000 Units.

d) Hence, the breakeven points in units for each of the products assuming a 4:3 sales mix is

i) Product X = 7,000 Units X 4 = 28,000 Units

ii) Product Y = 7,000 Units X 3 = 21,000 Units

Question - B

a) Sales Mix is 3:4

b) Hence, total contribution/unit = $5 X 3 + $10 X 4 = $55

c) Breakeven Points in units = Fixed Cost/Contribution per unit = $350,000/$55 = 6,364 Units (Rounded to zero place of decimal).

d) Hence, the breakeven points in units for each of the products assuming a 3:4 sales mix is

i) Product X = 6,364 Units X 3 = 19,092 Units, Considered 19,090 units

ii) Product Y = 6,364 Units X 4 = 25,456 Units, Considered 25,455 units

Question - C

When the Sales Mix is 4:3, in order to breakeven, Product X and Product Y need to be sold 28,000 Units and 21,000 Units respectively and when the Sales Mix is 3:4, in order to breakeven Product X and Product Y need to be sold 19,090 Units and 25,455 Units respectively.

Since, contribution per unit of Product X is $5 and that of Product Y is $10 which is fixed, in case of more sales evenly, over the breakeven number of units, result will be the same i.e. it will yield same operating profit. Hence, the desired move will have same impact.