On-the-Go, Inc., produces two models of traveling cases for laptop computers: th

Question

On-the-Go, Inc., produces two models of traveling cases for laptop computers: the Programmer and the Executive. The bags have the following Selling price per bag Variable cost per bag Expected sales (bags) per year $ 60 $ 20 8,000 $ 100 $ 50 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.) even units 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.) reak-even point units

Explanation / Answer

(a)

Anticipated profit = Total contribution - Annual fixed cost

= (320,000 + 600,000) - 678,000

= 920,000 - 678,000

= $242,000

(b)

Product mix is same at the break even level, hence the quantity sold of both Programmer and Executive bags is same at the break even level. Let the break even quantity of Programmer and Executive bags be X units each.

At the break even level, profit earned is zero. In other words, at the break even level, contribution margin is equal to the fixed cost.

Hence, 40X + 50X = 678,000

90X = 678,000

X = 678,000/90

= 7,533 units

Hence, at the break even level, 7,533 units of Programmer and 7,533 units of Executive bags will be sold.

(c)

At the break even level, 9 units of Programmer bags will be sold against 1 Executive bag. Hence the ratio of Programmer bags and Executive bags is 9:1 at the break even level.

Let X units of Executive bags are sold at the break even, hence 9X units of Programmer bags will be sold at the break even.

At the break even level, contribution = Fixed cost

9X x 40 + X x 50 = 678,000

360X + 50X = 678,000

410X = 678,000

X = 678,000/410

= 1,653.66

= 1,654 units

Number of units of Executive bags to be sold at the break even = 1,654

Number of units of Programmer bags to be sold at the break even = 1,653.66 x 9

= 14,883

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubts. Thanks.

Programmer Executive Selling price per bag 60 100 Variable cost per bag -20 -50 Contribution margin per bag (i) 40 50 Expected sales per year (ii) 8,000 bags 12,000 bags Total contribution (i) x (ii) $320,000 $600,000

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