2. On-the-Go, Inc., produces two models of traveling cases for laptop computers:
ID: 2328146 • Letter: 2
Question
2. On-the-Go, Inc., produces two models of traveling cases for laptop computers: the Programmer and the Executive. The bags have the following characteristics:
Programmer
Executive
Selling price per bag
$
60
$
100
Variable cost per bag
$
20
$
50
Expected sales (bags) per year
8,000
12,000
The total fixed costs per year for the company are $678,000.
Required:
a. What is the anticipated level of profits for the expected sales volumes?
b. Assuming that the product mix is the same at the break-even point, compute the break-even point. (Round your final answer up to the nearest whole unit.)
c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go? (Round your final answer up to the nearest whole unit.)
Programmer
Executive
Selling price per bag
$
60
$
100
Variable cost per bag
$
20
$
50
Expected sales (bags) per year
8,000
12,000
Explanation / Answer
a. Calculation of anticipated level of profits for the expected sales volumes:
$480,000
[8,000 bags x $60]
$1,200,000
[12,000 bags x $100]
$160,000
[8,000 bags x $20]
$600,000
[12,000 bags x $50]
Therefore from the above table, anticipated net profit for the expected sales volume = $242.000
b. Computation of the Break-Even Point assuming the product mix is the same at the break-even point:
A Multi-Product company like On the Go Inc. can caluclate Break Even Point by using below formula:
Break Even Point = Total Fixed Cost ÷ Total Weighted Average Contribution Margin per unit
Steps to calculate weighted-average contribution margin per Unit:
However in the question (Question b) It is said that the Product mix is same at the Break Even Point. That means Sales value of Programmer-style bags is equal to sales value of Exectuve style bags. at the Break even point. Means Sales mix percentage of Programmer Style bag is 50% and Sales mix Percentage of Executive style mix is 50%.
Total Weighted Average Contribution Margin per Unit = $20 + $25 = $45.
Now we have both Fixed Cost and Total Weighted Average Contribution Margin per Unit. All we have to do is to calculate using the formula.
Therefore,
Break Even Point = Total Fixed Cost ÷ Total Weighted Average Contribution Margin per unit
Break Even point = $678,000 ÷ $45 = 15,066.666 Bags = 15,067 bags (Approximately)
c. Computation of the new Break-Even Point assuming the product mix were to change to nine Programmer-style bags for each Executive-style bag:
All we have do is what we have done above.
Break Even Point = Total Fixed Cost ÷ Total Weighted Average Contribution Margin per unit
Fixed Cost = $678,000
Calculating Total Weighted Average Contribution per Unit:
However in the question (Question c) It is said that the Product mix is were to change to nine Programmer-style bags for each Executive-style bag. Means In a product mix of 10 bags of Both the Programmer-style bags and Executive-style bag, there are 9 Programmer-style bags and 1 Executive-style bag.
Sales mix percentage of Programmer style bag = $540 ÷ $640 = 84.4%
Sales mix percentage of Executive style bag = $100 ÷ $640 = 15.6%
Total Weighted Average Contribution Margin per Unit = $33.76 + $7.8= $41.56
Now we have both Fixed Cost and Total Weighted Average Contribution Margin per Unit. All we have to do is to calculate using the formula.
Therefore,
Break Even Point = Total Fixed Cost ÷ Total Weighted Average Contribution Margin per unit
Break Even point = $678,000 ÷ $41.56 = 16,314 bags
Programmer Executive Total Expected sales (bags) per year 8,000 Bags 12,000 Bags a. Sales$480,000
[8,000 bags x $60]
$1,200,000
[12,000 bags x $100]
$1,680,000 b. Variable Cost$160,000
[8,000 bags x $20]
$600,000
[12,000 bags x $50]
$760,000 c. Contribution Margin (a - b) $320,000 $$600,000 $920,000 d. Fixed Cost $678,000 Net Profit (c - d) $242,000Related Questions
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