Question

The Alves Company retails two products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as follows: (Click the icon to view the budgeted income statement.) Read the requirements Requirement 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix. Begin by determining the sales mix. For every 2 deluxe units) sold. standard units are sold. Data Table A Requirements Total Standard Carrier Deluxe Carrier 132,000 88,000 220,000 Units sold $ Revenues at $25 and $61 per unit Variable costs at $15 and $31 per unit 3,300,000 S 1,980,000 5,368,000 $ 8,668,000 2,728,000 4.700.000 2,640,000 3,980,000 2,205,000 1. Compute the breakeven point in units, assuming that the company achieves its planned sales mix 2. Compute the breakeven point in units (a) if only standard carriers are sold and (b) If only deluxe carriers are sold. 3. Suppose 220,000 unils are sold but only 22,000 of them are deluxe. Compute the operating income. Compute the breakeven point in units. Compare your answer with the answer to requirement 1. What is the major lesson of this problem? $ 1,320,000 S Contribution margins at $10 and $30 per unit Fixed costs $ 1,755,000 Operating Income Print Done Print Done Enter any number in the edit fields and then click Check Answer. ?

Answer 1

Sales mix:

132,000 : 88,000 = 3 : 2

Contribution margin for 5 units sold (ie. 3 + 2):

= ($10 X 3) + ($30 X 2)

= $90

1)

Breakeven point:

= $2,205,000 X 5 / $90

= 122,500

Standard = 122,500 X 3 / 5 = 73,500 units

Deluxe = 122,500 X 2 / 5 = 49,000 units

2)

a)

= $2,205,000 / $10

= 220,500

b)

= $2,205,000 / $30

= 73,500

3)

Operating income:

= [(22,000 X $30) + (220,000 - 22,000) X $10] - $2,205,000

= $435,000

Sales mix:

Standard units sold = 220,000 - 22,000 = 198,000

198,000 : 22,000 = 9 : 1

Fir ever 1 deluxe carrier 9 standard carriers are sold.

Contribution margin for 10 units sold (ie. 9 + 1):

= (9 X $10) + ($30 X 1)

= $120

Breakeven point:

= $2,205,000 X 10 / $120

= 183,750

Standard = 183,750 X 9/10 = 165,375 units

Deluxe = 183,750 X 1 / 10 = 18,375 units

The major lesson of this problem is that change in the sales mix change breakeven points and operating incomes.