Question

Question 2: Cascade Builders Inc. produces three products: A, B, and C. The following information is presented for the three products: Fixed Cost S 123,500 Product B Units produced 120 Product A 80 $ 4200 $ 90 Product C 200 $ 700 $ 400 $ 400 $ 150 Price Per Unit Variable Cost Per Unit Required: 1. Calculate the contribution margin for each product 2. Calculate the break-even point in units of the three products A, B, and C combination based on the sales mix percentage 3. Please give suggestions to the decision makers about how to increase profit based on the CVP analysis

Answer 1

1. Calculation of Contribution Margin per unit:
	Product A	Product B	Product C
Selling price per unit	$       200	$       400	$       700
Variable cost per unit	$         90	$       150	$       400
Contribution Margin per unit	$       110	$       250	$       300
2. Compuatation of break-even sales (units) is as follows:
Break-even sales (units) = Total fixed cost / Weighted average contribution margin per unit
= $ 123,500 / $ 247
= 500 units
Total combined Break-even sales is 500 units
Calculation of number of units of each product at Break-even point:
Products	Product A	Product B	Product C
Total Break even units	500	500	500
* Sales Mix Percentange	20%	30%	50%
Units at Break-even point	100	150	250
Working note:
Sales mix is as follows:
	Product A	Product B	Product C
Unit	80	120	200
Divided by Total units	400	400	400
Sales mix [(i)/(ii)]*100	20%	30%	50%
Compuatation of weighted-average contribution margin ratio is as follows:
Products	Product A	Product B	Product C	Total
Contribution Margin per unit	$       110	$       250	300
* Sales Mix Percentange	20%	30%	50%
Weighted-average contribution margin Ratio	$   22.00	$   75.00	$ 150.00	$ 247.00
3.
In order to increase a profit we need focus on contribution margin. If we able to increase contribution margin that will turns into increase the profit.
Thus, Company should focus on cost structure and try to minimise the variable cost per unit. Decrease in variable cost results in increase in contribution margin.
in this case, Product C has higher contribution margin per unit over other products. Thus we will advise company to try to produced and sold more product C.