Question

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs. Fixed Cost per Month Selling Price per Case $ 11 12 17 Variable Cost per Case $ 8 10 13 Variety 1 Variety 2 Variety 3 Entire firm $ 47,600 The sales mix (in cases) is 50 percent Variety 1, 25 percent Variety 2, and 25 percent Variety 3. Required: a. At what sales revenue per month does the company break even? b. Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $46,865 after taxes assuming the same sales mix? Complete this question by entering your answers in the tabs below. Required A Required B At what sales revenue per month does the company break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.) Break-even revenue

Answer 1

Contribution margin per unit:

Variety 1: = $11 - $8 = $3

Variety 2: = $12 - $10 = $2

Variety 3: = $17 - $13 = $4

Weighted average contribution margin:

= ($3 X 50%) + ($2 X 25%) + ($4 X 25%)

= $3

Weighted average selling price:

= ($11 X 50%) + ($12 X 25%) + ($17 X 25%)

= $12.75

Weighted average contribution margin ratio:

= $3 / $12.75

= 23.53%

A)

Breakeven revenue:

= $47,600 / 23.53%

= $202,300

B)

Profit before tax:

= $46,865 / 65%

= $72,100

Sales revenue:

= ($47,600 + $72,100) / 23.53%

= $508,725