Question

Gardner Furniture Company produces two kinds of chairs: an oak model and a chestnut wood model. The oak model sells for $76 and the chestnut wood model sells for $100. The variable expenses are as follows: Oak Chestnut Variable product cost per unit 30 35 variable selling and administrative cost per unit 6 5 Expected sales in units next year are: 4,000 oak chairs and 1,000 chestnut chairs. Fixed expenses are budgeted at $176,000 per year. The yearly break-even point in units are A/ units for oak chairs, and A units for chestnut chairs. If the sale mix will change to equal number of chairs sold, the operating income for 5,000 total units sold will be $

Answer 1

1)

Sales mix:

4,000 : 1,000 = 80 : 20

Weighted average contribution margin:

= [($76 - $36) X 80%] + [($100 - $40) X 20%]

= $44

Breakeven units:

= $176,000 / $44

= 4,000 units

Units of oka chair:

= 4,000 X 80%

= 3,200

Units of chestnut:

= 4,000 X 20%

= 800

2)

Operating income:

= [2,500 X ($76 - $36)] + [2,500 X ($100 - $40)] - $176,000

= $74,000