Question

Pin Cushion Company produces two models of sewing basket. Information about Pin Cushion's products is given below: Sales revenue Less: Variable costs Contribution margin Total units sold Product $35,880 : 14,280 $20,800 920 Product B $58,888 22,688 $27,408 1.960 Pin Cushion's fixed costs total $37,300. Required: 1. Determine Pin Cushion's weighted average unit contribution margin and weighted average contribution margin ratio. 2. Calculate Pin Cushion's break-even units and break-even sales revenue. 3. Calculate the number of units of each product that must be sold to break even. 4. Calculate the total sales necessary for Pin Cushion to earn a profit of $64,600. 5. Calculate the sales revenue generated from each product line if Pin Cushion earns its target profit of $64,600. 6. Using the original information, calculate Pin Cushion's degree of operating leverage. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Determine Pin Cushion's weighted average unit contribution margin and weighted average contribution margin ratio. (Round your intermediate calculations to 2 decimal places. Round your CM per unit and weighted average CM ratio to two decimal places (1.e. .1234 should be entered as 12.34%.) Weighted-Average Unit CMS Weighted Average CM Ratio Required 2 >

Answer 1

	Product A	Product B	Total
Sales revenue	35000	50000	85000
Less: Variable costs	14200	22600	36800
Contribution margin	20800	27400	48200
Total units sold	920	1960	2880

1.
Weighted-average unit contribution margin = Total contribution margin / Total units sold = 48200 / 2880	16.74
Weighted-average contribution margin ratio = Total contribution margin / Total sales revenue = 48200 / 85000	56.71%

2.
Break-even units = Total fixed costs / Weighted-average unit contribution margin = 37300 / 16.74	2228	units
Break-even sales revenue = Total fixed costs / Weighted-average contribution margin ratio = 37300 / 56.71%	65773.23

3.
	No. of units to be sold to break-even
Product A ( 2228 * 920 / 2880 )	712	units
Product B ( 2228 * 1960 / 2880 )	1516	units

4.
Target sales revenue = ( Total fixed costs + Target profit ) / Weighted average contribution margin ratio = ( 37300 + 64600 ) / 56.71%	179686.12

5.
	Sales revenue
Product A ( 179686.12 * 920 / 2880 )	57399.73
Product B ( 179686.12 * 1960 / 2880 )	122286.39

6.
Total contribution margin	48200
(-) Total fixed costs	37300
Total Net operating income	10900
Degree of operating leverage = Total contribution margin / Total net operating income = 48200 / 10900	4.42