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 $13,454,000. (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 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.) Total break-even sales to Sale of mail pouches and small boxes to Sale of non-standard boxes to (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 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.) Total break-even sales Sale of mail pouches and small boxes $ Sale of non-standardized boxes

Answer 1

(a)

Total Break Even Sales	$44846667
Sale of mail pouches and small boxes	$35877334
Sale of non standard boxes	$8969333

Total Break Even Sales :-

S = Sales

Fixed cost = $13454000

(.80 X .20)S + (.20 X .70)S = $13454000

= .16S + .14S = $13454000

=0.30S = $13454000

S = $44846667

So sales at break even = $44846667

Sales from "Pouches" = $44846667 X .80 = $35877334

Sales from "Non Std Boxes" = $44846667 X .20 = $8969333

(b)

Total Break Even Sales	$26908000
Sale of mail pouches and small boxes	$10763200
Sale of non standard boxes	$16144800

Total Break Even Sales :-

S = Sales

Fixed cost = $13454000

(.40 X .20)S + (.60 X .70)S = $13454000

= .08S + .42S = $13454000

=0.50S = $13454000

S = $26908000

So sales at break even = $26908000

Sales from "Pouches" = $26908000 X .40 = $10763200

Sales from "Non Std Boxes" = $26908000 X .60 = $16144800