Question

Exercise 3-47 (Static) Multiproduct CVP Analysis (LO 3-4) Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics. Selling price per taco Variable cost per taco Expected sales (tacos) Chicken $ 3.00 1.50 200,000 Fish $ 4.50 2.25 300,000 The total fixed costs for the company are $117,000. Required: a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix would be 40 percent chicken and 60 percent fish at the break-even point, compute the break-even volume. c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break-even volume?

Answer 1

Answer :

( a ) Computation of profit from Expected sales volume

	Chicken	Fish	Total
Selling price	$ 3	$ 4.50
Less - variable cost	$ 1.50	$ 2.25
Contribution per unit (a)	$ 1.50	$ 2.25
Expected sales unit (b)	200000	300000
Total contribution (a)* (b)	$ 300000	$ 675000	$ 975000
Less - Fixed cost			$ 117000
Total profit			$ 858000

(b) Computation of Break even Volume

Weighted average unit contribution margin = Contribution per unit of each product * sales mix %

= $ 1.50* 40 % + $ 2.25*60%

= $ 0.6 + $ 1.35

= $ 1.95

Total Break even point in unit = Fixed cost / Weighted average unit contribution margin

= $ 117000 / $ 1.95

= 60000 unit

Break even volume chicken = 60000unit* 40% = 24000 unit

Break even volume Fish = 60000 unit *60 % = 36000 unit

(c)

New sales mix = 4 chicken tacos and 1 fish tacos

so chicken = 80 %

Fish = 20 %

Weighted average unit contribution margin = Contribution per unit of each product * sales mix %

= $ 1.50*80 % + $ 2.25*20%

= $ 1.65

Total Break even point in unit = Fixed cost / Weighted average unit contribution margin

= $ 117000 / $ 1.65

= 70909 unit ( Approx)

Break even volume chicken = 70909unit* 80% = 56727 unit

Break even volume Fish = 70909 unit *20 % = 14182 unit