Pete’s Pet Products is a sole proprietorship owned by Pete Thompson. The store

Question

Pete’s Pet Products is a sole proprietorship owned by Pete Thompson. The store provides a full-line of pet products, including food, grooming materials, toys, leashes, etc. The company also sells hand-made pet houses, including dog houses, bird cages, and cat castles. Each of the pet houses is being evaluated in terms of cost-volume-profit. See the relevant information below:

When Pete uses a distributor to sell additional pet houses, he has to pay a sales commission of 8% of the sales price. On average, he sells 60% of each pet house through distributors. The fixed costs (shown above) are based on estimated design time for each product. Pete’s store averages $32,000 of fixed costs per month.

Dog house Bird cage Cat castle Sales Price $140 $95 $160 Variable cost $65 $34 $56 Fixed monthly cost 30% 25% 45%

Explanation / Answer

contribution margin Dog house = 140-65 = $75

contribution margin Bird Cge = 95-34 = $61

contribution margin Cat Castle = 160-56 = $104

monthly break-even units for Dog House = 30%*32000/75 = 128 units

monthly break-even units for Bird Cge = 25%*32000/61= 131.15 units

monthly break-even units for Cat Castle = 45%*32000/104= 138.46 units

units

Dog house Bird cage Cat castle Sales Price $140 $95 $160 Variable cost $65 $34 $56 Fixed monthly cost 30% 25% 45%

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