Basu Company produces two types of sleds for playing in the snow: basic sled and

Question

Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:

The selling prices are $30 for the basic sled and $60 for the aerosled.

2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole.

3. Conceptual Connection: Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an additional $195,000, and some of the potential purchasers of basic sleds would switch to aerosleds. In total, sales of aerosleds would increase by 12,000 units, and sales of basic sleds would decrease by 5,000 units. Would Basu be better or worse off with this strategy? Round your answer to the nearest dollar.
SelectBetter offWorse offItem 5 $

Explanation / Answer

Based on the projected income, Units of basic sled sold = 3000000/30 = 100000 units Units of Aerosled sold = 2400000/60 = 40000 units Sales mix = 10:4 = 5:2 Contribution per unit: Basic sled = 2000000/100000 = $20 Aerosled = 1400000/40000 = $35 Contribution per mix = 20 x 5 + 35 x 2= $170 Total Fixed Cost = 778000 + 650000 = $1428000 Breakeven in mixes = 1428000/170 = 8400 mixes Thus, breakeven units Basic sled = 8400 x 5 = 42000 units Aerosled= 8400 x 2 = 16800 units Sales mix = 5:3 Contibution per mix = 20 x 5 + 35 x 3 = $205 Breakeven in mixes = 1428000/205 = 6966 mixes Thus, breake ven units Basic sled = 6966 x 5 = 34830 units Aerosled= 6966 x 3 = 20898 units After advertising, total fixed cost = 1428000 + 195000 = $1623000 Units of basic sled sold = 100000 -5000 = 95000 units Units of Aerosled sold = 40000 + 12000 = 52000 units Total contribution = 95000 x 20 + 52000 x 35 = $3720000 Total income = 3720000 - 1623000 = $2097000 Before advertising, total income = 1222000 + 750000 = $1972000 BETTER OFF: 2097000 - 1972000 = $125000

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