Question

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,868,100. (a) What is the company's break-even point in total sales dollars? At the break-even point, how much of the company's sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places eg. 0.22 and round find answers to O decimal places, e.g. 2,510.) Total break-even sales Sale of mail pouches and small boxes $ Sale of non-standard boxes (b) The company's management would like to hold its fixed costs constant but shift its sales mix so that 60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company's break-even sales, and what amount of sales would be provided by each service type? (Use Weighted Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to decimal places, e.g. 2,510) Total break-even sales

Answer 1

(a) Weighted average contribution margin = (mail pouches and small boxes contribution margin*sales mix) + (non standard boxes contribution margin*sales mix)

= (0.2*0.8) + (0.7*0.2)

= 0.3

Total break-even sales = Fixed costs / Weighted average contribution margin

= $13,868,100 / 0.3

= $46,227,000

Sale of mail pouches and small boxes = Total break-even sales * Sales mix

= $46,227,000 * 80%

= $36,981,600

Sale of non standard boxes = Total break-even sales * Sales mix

= $46,227,000 * 20%

= $9,245,400

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(b)

Weighted average contribution margin = (mail pouches and small boxes contribution margin*sales mix) + (non standard boxes contribution margin*sales mix)

= (0.2*0.4) + (0.7*0.6)

= 0.5

Total break-even sales = Fixed costs / Weighted average contribution margin

= $13,868,100 / 0.5

= $27,736,200

Sale of mail pouches and small boxes = Total break-even sales * Sales mix

= $27,736,200 * 40%

= $11,094,480

Sale of non standard boxes = Total break-even sales * Sales mix

= $27,736,200 * 60%

= $16,641,720