Lindstrom Company produces two fountain pen models. Information about its produc
ID: 2330422 • Letter: L
Question
Lindstrom Company produces two fountain pen models. Information about its products follows Produet B Product A 155,000 Sales revenue Less: Variable coats $$8,000 $143,500 5,000 Total units sold 5,000 Lindstrom's fixed costs total $86,500 Required 1. Determine Lindstrom's weighted-average unit contribution margin and weighted-average contribution margin ratio. (Round your weighted-average CM to 2 decimal places and your CM ratio to 1 decimal place (i.e..123 should be entered as 12.3%). per Unit Weighted-Average CM Rato 2. Calculate Lindstrom's break-even point in units and in sales revenue. (Round your "Sales Revenue" answer to 2 decimal places and "Sales Units" answer to the nearest whole number.) 3. Calculate the number of units that Lindstrom must sell to earn a $130,000 profit. (Round your answer to the nearest whole number.) 4. Calculate Lindstrom's margin of safety and margin of safety as a percentage of sales if it sells 7,300 total pens. (Round your margin of safety in units to the nearest whole number and your percentage of sales answer to 2 decimal places (i.e. .1234 should be entered as 12.34%)) Margin of Safety Margin of Safety as Pencentage of SalesExplanation / Answer
Answer
Note: Sales Mix = 5000 units : 5000 units= 50% of total for each product.
Working
Product A
Product B
A
Sales Revenue
$ 155,000.00
$ 205,000.00
B
Total units
5,000
5,000
C = A/B
Sale price per unit
$ 31.00
$ 41.00
D
Total Contribution margin
$ 98,000.00
$ 143,500.00
E = D/B
Contribution margin per unit
$ 19.60
$ 28.70
F = 50% each, because no. of units is same
Sales Mix
50%
50%
G = E x F
Weighted Contribution per unit
$ 9.80
$ 14.35
H = (E/C) x 100
CM Ratio
63.2%
70.0%
I = H x F
Weighted CM ratio
31.6%
35.0%
Weighted Average CM:
- Product A
$ 9.80
- Product B
$ 14.35
Answer: Weighted Average CM
$ 24.15 per unit
Weighted Average CM Ratio
- Product A
31.6%
- Product B
35.0%
Answer: Weighted Average CM Ratio
66.6%
A
Total Fixed Cost
$ 86,500.00
B
Weighted Average CM per unit
$ 24.15 per unit
C = A/B
Break Even Sales Units
3,582 units
D
Weighted Average CM Ratio
66.6%
E = A/D
Break Even Sales revenue
$ 129,879.88
A
Desired Profits to earn
$ 130,000.00
B
Total Fixed Cost
$ 86,500.00
C = A+B
Total Contribution margin required
$ 216,500.00
D
Weighted Average CM per unit
$ 24.15 per unit
E = C/D
Target Sales Units
8,965 units
A
Sales in units
7,300 units
B [calculated in Req 2]
Break Even Sales Units
3,582 units
C = A - B
Margin of Safety in Units
3,718 units
D = (C/A) x 100
Margin of Safety as Percentage of Sales
50.93%
Working
Product A
Product B
A
Sales Revenue
$ 155,000.00
$ 205,000.00
B
Total units
5,000
5,000
C = A/B
Sale price per unit
$ 31.00
$ 41.00
D
Total Contribution margin
$ 98,000.00
$ 143,500.00
E = D/B
Contribution margin per unit
$ 19.60
$ 28.70
F = 50% each, because no. of units is same
Sales Mix
50%
50%
G = E x F
Weighted Contribution per unit
$ 9.80
$ 14.35
H = (E/C) x 100
CM Ratio
63.2%
70.0%
I = H x F
Weighted CM ratio
31.6%
35.0%
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