Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have

Question

Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics:

What is the anticipated level of profits for the expected sales volumes?

Assuming that the product mix is the same at the break-even point, compute the break-even point.

If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics:

Explanation / Answer

You forgot that the $240 contribution margin that you based your answer on was for a bundle of 5 units. So the total volume would be 4,600 X 5 = 23,000

This total is broken down between the two products as:

AU = 18,400 (23,000 / 5 X 4)
NZ = 4,600 (23,000 / 5 X 1)

You can prove this by calculating the combined contribution margin (which will equal the total fixed costs if you did the calculation correctly)

18,400 X $50 = $920,000
4,600 X $40 = $184,000

$920,000 + $184,000 = $1,104,000 - and you have proved your answer

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