Lindstrom Company produces teo fountain pen mooets information about its product
ID: 2402264 • Letter: L
Question
Lindstrom Company produces teo fountain pen mooets information about its products tolows Sales revenu Less Variable costs Product A Product B $75,00D 5125,000 Total urits sold 5,000 5,D00 indstrom's foved costs total 578,500 Reuire ine Lindstrom's unit contribution margin and weighled-average cantritxution margn rato (Round your contribution margin ratio to 1 decimal place (e 123 shouid be entered as 12.31 Weighted Average CM Ratio 2. Caculate Linestrom's break-even pont in unts and in sales revenue (Round your"Sales Revenue" answer to 2 decimail places and "Sales Units" answer to the nearest whole numberJ Break-Evan Salas Uhis Break Even Sales Reverue 3. Calculane the number of unts that Lindstrom must set to eam a $ 150.,000 pront Round your answer to the nearest whole number) 4. Caculiale Lindstroem's margn of safety and margin of satety as a percentage of sales rit sets 8,000 tctal pens (Round your margin of satety in units to the nearest whole number and your percentage of sales answer to 2 decmad places eLe. .1234 should be entered as 12.34%) Margin of Salety Margin al Safsty as Percentage of SalesExplanation / Answer
1.Weighted average unit contribution margin = Contribution/No. Of unit sold
Product A = $42,000/5,000= 8.4
Product B = $87,000/5000= 17.4
Weighted average contribution margin ratio = Total contribution/Total sales
Product A = $42,000/$75,000 = 56%
Product B = $87,000/$125,000 = 69.6%
2. Break Even Point = Fixed cost/(Sales price - variable cost per unit)
Product A = $78,500/(15-6.6) = 9,345 units
Product B = $78,500/(25-7.6) = 4,511 units
Break even point in sales revenue
Product A = Break even point in units * sales price
= 9,345.23*15
= $140,178.45
Product B = 4,511.49*25
= $112,787.23
3. No. Of unit sold to earn a profit of $150,000
( Profit + fixed cost)/ controbution per unit
Product A = (150,000+78,500)/8.4 = 27202 units
Product B = (150,000+78,500)/17.4 = 13132 units
4. Calculate margin of safety ( if unit sold is 8000)
Actual sales - Break even sales
Product A = $120,000-$140,178.45
= $-20,178.45
Product B = $200,000-$112,787.23
= $87,212.77
Margin of safety as a percentage of sales
Product A = $-20,178.45/$120,000
= 16.81%
Product B = $87,212.77/$200,000
= 43.60%
* negative margin of safety represent net loss
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