Problem

Multiple Product CVP Analysis; Sensitivity Analysis Headlines Publishing Company (HP...

Multiple Product CVP Analysis; Sensitivity Analysis Headlines Publishing Company (HPC) specializes in international business news publications. Its principal product is HPC-Monthly, which is mailed to subscribers the first week of each month. A weekly version, called HPCWeekly ,is also available to subscribers over the web at a higher cost. Sixty percent of HPC’s subscribers are nondomestic customers. The company experienced a fast growth in subscribers in its first few years of operation, but sales have begun to slow in recent years as new competitors have entered the market. HPC has the following cost structure and sales revenue for its subscription operations on a yearly basis. All costs and all subscription fees are in U.S. dollars.

Required Use the above data to determine the following:

1. Contribution margin per unit for weekly and for monthly subscriptions.

2. Contribution margin ratio for weekly and for monthly subscriptions.

3. HPC’s breakeven point in sales units and sales dollars. Use the weighted-average contribution margin approach and show calculations. ( Hint: When calculating the weighted-average contribution margin per unit, the weights in the calculation are based on relative units sold. When calculating the weighted-average contribution margin ratio, the weights are based on relative sales dollars, not units, of the individual products.) At the overall breakeven point in units, what is the breakeven amount (in units) for each individual product? What is the breakeven amount (in sales dollars) for each product?

4. Explain the following quote: “For the multiproduct (or multiservice) firm, there is no breakeven point independent of the sales-mix assumption.”

5. Prepare a data table for the breakeven volume and percentage change in the breakeven point from the base case (requirement 3, above) for 1% absolute changes in sales mix for HPC-Weekly over the range 15% to 25%.

6. What sales level (in total units) at the assumed sales mix is required to reach a before-tax profit of $75,000?

7. Given the assumed sales mix, what sales volume (in total units) is required to generate an after-tax profit, , equal to 10% of sales dollars? (Show calculations.)