Question

Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here: MegaMuscle PowerGym ProForce Selling price per unit $ 138 $ 200 $ 300 Contribution margin per unit 43 79 59 Monthly sales volume—units 3,000 1,930 1,040 Fixed expenses per month Total of $320,300\

a. Calculate the contribution margin ratio of each product. (Round your answers to 1 decimal place.)

b. Calculate the firm's overall contribution margin ratio. (Round your answer to 1 decimal place.)

c. Calculate the firm's monthly break-even point in sales dollars. (Round your intermediate calculations to 1 decimal place.)

d. Calculate the firm's monthly operating income.

e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $266,140 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.

e-2. Would you recommend the elimination of the ProForce model?

	Yes
	No

  

f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 499 units per month if the ProForce model is eliminated. What would be the effect on operating income.

f-2. Would you recommend eliminating the ProForce model?

	Yes
	No

Answer 1

Req a:
			Mega	Power	Proforce
			Muscle	Gym
Selling price per unit			138	200	300
Contribution margin per unit			43	79	59
CM ratio			31.16%	39.50%	19.67%
(Contribution margin/Selling price)
Req b:			Mega	Power	Proforce	Total
			Muscle	Gym
Units sold			3000	1930	1040
Selling price			138	200	300
CM per unit			43	79	59
Sales revenue			414000	386000	312000	1112000
Contribution margin			129000	152470	61360	342830
CM ratio = Contribution/ Sales *100 = 342830 / 1112000 *100 =30.83%
Req c:
Break even in $ = Fixed cost / CM ratio
		320300 /30.83% = $ 1038923
Req d:			Mega	Power	Proforce	Total
			Muscle	Gym
Units sold			3000	1930	1040
Selling price			138	200	300
CM per unit			43	79	59
Sales revenue			414000	386000	312000	1112000
Contribution margin			129000	152470	61360	342830
Less: Fixed cost						320300
Net Operating income						22530
Req e-1			Mega	Power	Total
			Muscle	Gym
Units sold			3000	1930
Selling price			138	200
CM per unit			43	79
Sales revenue			414000	386000	800000
Contribution margin			129000	152470	281470
Less: Fixed cost					266140
Net Operating income					15330
Decrease n Net Operating income = 15330-22530 = -7200
Req e-2
No, Proforce shall not be eliminated
Req f-1			Mega	Power	Total
			Muscle	Gym
Units sold			3000	2429
Selling price			138	200
CM per unit			43	79
Sales revenue			414000	485800	800000
Contribution margin			129000	191891	320891
Less: Fixed cost					266140
Net Operating income					54751
Increase in net operating income = 54751-22530 = 32,221
Req f-2
Yes, Elimination is recommended