Question

The

JanobiJanobi

Company has three product lines of beer

mugsmugslong dash—​A,

​B, and

Clong dash—with

contribution margins of

$ 5$5​,

$ 3$3​,

and

$ 2$2​,

respectively. The president foresees sales of

238 comma 000238,000

units in the coming​ period, consisting of

34 comma 00034,000

units of​ A,

136 comma 000136,000

units of​ B, and

68 comma 00068,000

units of C. The​ company's fixed costs for the period are

$ 199 comma 500$199,500.

Read the requirements

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.

Requirement 1. What is the​ company's breakeven point in​ units, assuming that the given sales mix is​ maintained? Begin by determining the sales mix.

For every 1 unit of Product A,

units of Product B, and

units of Product C are sold.

Determine the formula used to calculate the breakeven point of the bundle when there is more than one product sold.​ Then, enter the amounts in the formula to calculate the breakeven point in bundles.

/

=

Breakeven point in bundles

/

=

The breakeven point is			units of Product A,		units of Product B, and
	units of Product C.

Requirement 2. If the sales mix is​ maintained, what is the total contribution margin when

238 comma 000238,000

units are​ sold? What is the operating​ income?

	Product A	Product B	Product C	Total
Units sold
Contribution margin
Fixed costs
Operating income

Requirement 3. What would operating income be if the company sold

34 comma 00034,000

units of​ A,

68 comma 00068,000

units of​ B, and

136 comma 000136,000

units of​ C? What is the new breakeven point in units if these relationships persist in the next​period?

Begin by calculating the operating income.

	Product A	Product B	Product C	Total
Units sold
Contribution margin
Fixed costs
Operating income

What is the new breakeven point in units if these relationships persist in the next​ period?

The breakeven point of the bundle is

bundles.

The breakeven point is			units of Product A,		units of Product B, and
	units of Product C.

Requirement 4. Comparing the breakeven points in requirements 1 and​ 3, is it always better for a company to choose the sales mix that yields the lower breakeven​ point? Explain. ​(Select the correct choice with the best​ explanation.)

A.

​Yes, it is always better to choose the sales mix with the lowest breakeven point because the lowest breakeven point will always result in a higher contribution margin.

B.

​Yes, it is always better to choose the sales mix with the lowest breakeven point because the lowest breakeven point will always result in a higher operating income.

C.

​No, it is not always better to choose the sales mix with the lowest breakeven point because this calculation ignores the demand for the various products. The company should look to and sell as much of each of the 3 products as it can to maximize operating income even if this means that this sales mix results in a higher breakeven point.

D.

​No, it is not always better to choose the sales mix with the lowest breakeven point because this calculation ignores the fixed costs. The company should consider the fixed costs in order to maximize operating income.

Answer 1

Requirement 4:

The fourth requirement is already answered in the question and it is correct. Hence, again it is not repeated.