the Janowski Company has three product lines of mugs - A, B, and C- with contrib

Question

the Janowski Company has three product lines of mugs - A, B, and C- with contribution margins fo $5, $4, and $3, respectively. the president foresees sales of 168,000 units in the coming period, consising of 24,000 units of A, 96,000 units of B, and 48,000 units of C. The company's fixed costs for the period are $405,000.

1. What is the company's breakeven point in units, assuming that the given sales mix is maintained?

2. If the sales mix is maintained, what is the total contribution margin when 168,000 units are sold? What is the operating income?

3. What would operating income be if the company sold 24,000 units of A, 48,000 units of B, and 96,000 units of C? What is the new breakeven point in units if these relationships persist in the next period?

4. Comparing the breakeven points in requirements 1 and 3, is it always better for a company to choose the sales mix that yields the lower breakeven point? Explain.

Explanation / Answer

1 calculation of break even point break even point in units fixed cost / contribution per unit in sales mix a b c contribution per unit 5 4 3 ratio 0.14 0.57 0.29 contribution per unit in sales mix 5*0.14 4*0.57 3*0.29 contribution per unit in sales mix 0.7 2.28 0.87 total contribution per unit in sales mix 0.70+2.28+0.87 total contribution per unit in sales mix 3.85 break even point in units 405000/3.85 break even point in units 105194.81 sales mix a b c total 24000 96000 48000 168000 ratio a b c 24000/168000 96000/168000 48000/168000 0.14 0.57 0.29 1.00 2 calculation of total contribution margin and net operating income products sales in units contribution per unit total contribution a 24000 5 $120,000 b 96000 4 $384,000 c 48000 3 $144,000 $648,000 less - fixed cost $405,000 net operating income $243,000 3 calculation of operating income and break even point products sales in units contribution per unit total contribution a 24000 5 $120,000 b 48000 4 $192,000 c 96000 3 $288,000 $600,000 less - fixed cost $405,000 net operating income $195,000 break even point fixed cost / contribution per unit in sales mix a b c contribution per unit 5 4 3 ratio 0.14 0.29 0.57 contribution per unit in sales mix 5*0.14 4*0.29 3*0.57 contribution per unit in sales mix 0.7 1.16 1.71 total contribution per unit in sales mix 0.70+1.16+1.71 total contribution per unit in sales mix 3.57 break even point in units 405000/3.57 break even point in units 113445.38 sales mix a b c total 24000 48000 96000 168000 ratio a b c 24000/168000 48000/168000 96000/168000 0.14 0.29 0.57 1.00

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