Pets R US sells dog and cat food. Its monthly fixed costs average $620,000. Cat

Question

Pets R US sells dog and cat food. Its monthly fixed costs average $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis:

Cat Food - Selling Price = $40 dollars and contribution margin = $16 dollars

Dog Good - Selling Prices = $30 and contribution margin = $9 dollars

(a) The total monthly sales revenue required to break-even is $__________. (Rounded)
(b) The total monthly sales revenue required to earn an operating income of $135,000 is $__________.
(c) The company's margin of safety at a monthly sales level of $2,500,000 is $__________.
(d) If monthly fixed costs increase by $10,000, the break-even point, expressed in sales dollars, will increase to $__________.

Explanation / Answer

Sales of the month comprses of

80% of cat food

20% of dog food

Therefore, Weighted average contribution = 80% of $16 + 20% of $9 = $12.8+$1.8 = $14.6

a) Monthly Fixed Cost = $ 620000

there fore break even units= $620000/14.6 = 42466 (App)

Sales revenue from Cat Food = 42466*.80*40 = 1358912

Sales revenue from Cat Food = 42466*.20*30 = 254796

Therefore, Breakeven Sales = 1613708

b) Monthly Fixed Cost = $ 620000

operating Profit = $135000

Units to be sold = 755000/14.6 = 51713

Sales Revenue = 51713*0.8*40 +51713*0.2*30 = 1654816 + 310278 = 1965094

c) Margin of safety = Sales - Breakeven = 2500000 - 1613708 = $886292

d)Fixed Cost = 620000

Increase = 10000

Revised fixed Cost = 630000

Sales in Units = 630000/14.6 = 43151

Therefore, Sales = 43151*0.8*40 + 43151*0.2*30 = 1380832 +258906 = $1639738

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