Question

A firm sells two products, A and B, at unit price of $9.24 and $7.69, respectively. The sales of A and B are simultaneous, and always in a 1-to-4 ratio. The overall contribution margin ratio is 40 percent, and the break-even point is 15,000 units. Required: 1. 2. Given the above conditions, what are the amounts appropriate to points X, Y, and Z in the graph at the bottom of this page? How many units, in total together, of A and B must be sold in order to arrive at a profit of $24,000 if: The selling prices and cost behavior patterns now prevailing are maintained. a. b. By incurring some extra shipping and sales commission costs, the company can boost volume. The incidence of these costs would be an extra $1.24 per unit for each unit of product A sold in excess of 3,000 units per year and extra $.69 per unit for each unit of product B sold excess of 12,000 units per year. Assume that the break-even point is 15,000 units under either Plan 2a or Plan 2b. Beyond the break-even point, the total units sold under Plan 2b will exceed the total under Plan 2a by 40 percent. Which pricing plan is more profitable, 2a or 2b? Show computations to support your answer. 3. Z X=1

Answer 1

Working One unit of product & lunt of A tout unit of 3 selling price of one voit 4 9.24 + (4* 7.69) 40 Selling price 40 Less: Contributive (461) (16) Variable cost 24 Break even sale = 15000 X 40 6,00,000 Break even variable cost - 15000 X 24 = 3,60,000 aut break even Fired cost is ewed to Total contribution Fixed cost = 150VO X16 = 240,000 Answer 6,00,000 Point z Break even sale = 2,40,000 Point x = Finced cost point y = variable cout et Break gren = 3,60,00, 2) if need 24000 Profit a unit to be sold Fixed cost + Profit contribution = 240,000 + 24000 16500 voits IG

b) unit after which cost of increase 3000 A + 12000 B 5 = 3000 unit cost till 3000 unit Fixed cost = 3000 x16 - 4 8000 variable cost - 3000 x 24 = 72001

unit reanied to be sold after 3000-unit to reciere profit of 24.000 (Fixed cost Fixed cout of 3000 unit + Profit unit to be sold contribution (240 00 Ovo - 48000) + 24000 (16 extra cost incured 216000 16-(1.24 +(4x0.69) 216000 12 E 180vo vnit Total unit to be sota = 18000 + 3000 21000 unit

3 After break even point profit per As per plan unit of 20 under each plan Profit as per plan aa per unit 16 1.4 x 12 Profit as per plan ab per unit 168 do profitable plan is plan ab sales will increase by 40% so luait * As per plan 2b will earal to book 1x 140 loo 1.4