Question

Alabama Sounds, Inc., sells portable CD players, CDs, and batteries, which follow a normal pattem for sales mix of 1:3:6, respectively. The following reflects the company's costs. ALABAMA SOUNDS, INC. COMPANY VARIABLE COST DATA FOR PRODUCTS SOLD CD Players CDs Batteries Variable product costs per unit $ 62.00 s 1.20 $ 0.22 Variable selling expenses per unit 14.00 0.50 0.05 Variable general and administrative expenses per unit 0.10 0.04 0.03 ALABAMA SOUNDS, INC. COMPANY FIXED COSTS DATA FOR PRODUCTS SOLD Annual fixed manufacturing overhead s Annual fixed selling expenses Annual fixed general and administrative expenses 610,000 160,000 180.000 Selling prices are $140 for CD players, S5 for CDs, and 50.50 for batteries. The firm is in a 40% tax bracket

Answer 1

a) Weighted Average Contribution CD Player Batteries 5 Calculation of contribution Product Selling price Less Variable cost Less Variable Selling exp Less Variable general and admin exp Contribution CDs 140 62 14 0.1 63.9 1.2 0.5 0.04 3.26 0.5 0.22 0.05 0.03 0.2 Contribution ! Weighted Average Prodcut CD Player CDs Batteries Weightage Ratio 63.9 1 3.26 3 0.2 6 10 Weightage Average 0.1 6.39 0.3 0.978 0.6 0.12 7.488 b) Break Even Point

b) Break Even Point Here we are assuming company is using same weigatage to calculate break even point Total Fixed Cost Fixed Manufecturing overhead Annual Fixed Selling expe Annual fixed general and adm exp. Total 610000 160000 180000 950000 Break even formula Fixed Cost/Contribution 950000/7.488 126870 Units Break even sale each unit wise Prodcut CD Player CDs Batteries Total Verifying Contribution Total Contribtuion 12687 63.9 810697.1274 38061 3.26 124078.5275 76122 0.2 15224.3592 126870 950000.01 Matching with Fixed cost C) Units Break Even Sales in Dollar Prodcut CD Player CDs Batteries Total Selling price Total Sales 12687 140 1776175 38061 5 190304 0.5 38061 126870 2004541 76122

Desired Profit 240000 Before Tax 7 d) 5 5 7 B Break Even sales forumlua (Fixed cost+Desired profit)/Contribution (950000+240000)/7.488 158921 Units 1 2 3 4. 5 Prodcut CD Player CDs Batteries Total Selling price Total Amount 15892 140 2224893 47676 5 238381 95353 0.5 47676 158921 2510951

e) Before tax Desired Profit 200000 Tax rate 40% Convert this before tax Assumed amount Profit before tax Tax Profit after tax. 100 222222.22 40 133333.33 60 200000 Desired profit before tax Break Even sales forumlua Prodcut CD Player CDs Batteries Total 222222 (Fixed cost+Desired profit)/Contribution (950000+222222)/7.488 156547 Units Selling price Total Amount 15655 140 2191654 46964 5 234820 93928 0.5 46964 156547 2473439
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