Question

Skippy Quadcopters plans to sell a standard quadcopter (toy drone) for $60 and a deluxe quadcopter for $70. Skippy purchases the standard quadcopter for $40 and the deluxe quadcopter for $50. Management expects to sell two deluxe quadcopters for every three standard quadcopters. The company's monthly fixed expenses are $16,000. How many of each type of quadcopter must Skippy sell monthly to breakeven? To earn $10,000? First identify the formula to compute the sales in units at various levels of operating income using the contribution margin approach. (Abbreviations used: Avg. = average, and CM = contribution margin.) = Breakeven sales in units

Answer 1

Working Notes:
	CALCULATION OF WEIGTED CONTRIBUTION MARGIN PER UNIT
	PARTICULARS	Standard	Delux
	Selling Price	$                           60	$                               70
	Less: Variable Cost	$                           40	$                               50
	Contribution Margin Per Unit	$                           20	$                               20
	X Sales Mix Percentage (B)	60.00%	40.0%
		(3 Units / 5 Units)	(2 Units / 5 Units)
	Weighted Contribution Margin (AXB)	$                     12.00	$                           8.00
	Weighted Contribution Margin Per unit ($ 12 + $ 8)	$                     20.00
SOLUTION:
	Target Profit = ( Fixed Cost + target Income ) / Weighted Contribution Margin
	Target Profit =
	Fixed Cost =	$                   16,000
	Add:	"+ "
	Target Income =	$                   10,000
	Equal to =	$                   26,000
	Divide By	"/"By
	Weighted Contribution marrgin	$                     20.00
	Break even Sales in Units	$                     1,300
	Standard Qunatity = 1300 Units X 60% =	$                         780
	Delux Quantity = 1300 Units X 40%   =	520