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.

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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