Question

Sundial, Inc. produces two models of sunglasses-AU and NZ. The sunglasses have the following characteristics. AU 180 Selling price per unit Variable cost per unit Expected units sold per year NZ $ 180 $ 60 40,000 60,000 The total fixed costs per year for the company are $1,056,000. Required: a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix is the same at the break-even point, compute the break-even point. c. If the product sales mix were to change to four pairs of Au sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Answer 1

a. Anticipated level of profit = $8544000

	AU	NZ	Total
Selling price per unit	$180	$180
(-) Variable cost per unit	($100)	($60)
Contribution margin per unit	$80	$120
(*) Sales volume	60000	40000
Total contribution margin	$4800000	$4800000	$9600000
(-) Fixed cost			($1056000)
Operating income			$8544000

b. Break even point in units = 6600 units AU and 4400 units of NZ, break even point in dollars = $1188000 and $792000 respectively

Anticipated level of profit = $8544000

	AU	NZ	Total
Selling price per unit	$180	$180
(-) Variable cost per unit	($100)	($60)
Contribution margin per unit	$80	$120
(*) Sales volume ratio {a}	0.6 [60000/100000]	0.4 [40000/100000]
Weighted contribution margin per unit {b}	$48	$48	$96
Fixed cost {c}			$1056000
Break even point in units {d=c/b}	6600 [11000×0.6]	4400 [11000×0.4]	11000
Break even point in dollars {a×d}	$1188000	$792000	$1980000

c.

Break even point in units = 9600 units AU and 2400 units of NZ, break even point in dollars = $1728000 and $432000 respectively

	AU	NZ	Total
Selling price per unit	$180	$180
(-) Variable cost per unit	($100)	($60)
Contribution margin per unit	$80	$120
(*) Sales volume ratio {a}	0.8 [4/5]	0.2 [1/5]
Weighted contribution margin per unit {b}	$64	$24	$88
Fixed cost {c}			$1056000
Break even point in units {d=c/b}	9600 [12000×0.8]	2400 [12000×0.2]	12000
Break even point in dollars {a×d}	$1728000	$432000	$2160000