Malibu Corporation has monthly fixed costs of $57,000. It sells two products for

Question

Malibu Corporation has monthly fixed costs of $57,000. It sells two products for which it has provided the following information: Sales Price Contribution Margin Product 1 $15 $9 Product 2 20 4 a. What total monthly sales revenue is required to break even if the relative sales mix is 30 percent for Product 1 and 70 percent for Product 2? (Round your answer to the nearest dollar amount.) b. What total monthly sales revenue is required to earn a monthly operating income of $16,000 if the relative sales mix is 20 percent for Product 1 and 80 percent for Product 2? (Round your answer to the nearest dollar amount.)

Explanation / Answer

Thus, required Sales is

$ 219,571

(a) Break even sales will be such so as contribution margin will equall to fixed cost and so should have sales mix. Suppose total sales = X Product 1 Product 2 Sales Mix Sales 15 20 Product 1 .30X Contribution Margin 9 4 Product 2 .70X % of Contribution Margin 60% 20% Contribution Margin, Product 1 60% .30X*60% .18X Product 2 20% .30X*20% .06X Total .24X Now, according to question, Contribution Margin = Fixed Cost .24X = 57000 X = 237500 Thus, required monthly sales revenue is $ 237,500 (b) Break even sales will be such so as contribution margin will equall to fixed cost and so should have sales mix. Suppose total sales = X Product 1 Product 2 Sales Mix Sales 15 20 Product 1 .20X Contribution Margin 9 4 Product 2 .80X % of Contribution Margin 60% 20% Contribution Margin, Product 1 60% .20X*60% .12X Product 2 20% .80X*20% .16X Total .28X Now, according to question, Contribution Margin = Fixed Cost .28X = 57000 X = 203571 Breakeven Sales = 203,571 Required Operating Income = 16000 Required Sale = 219,571

Thus, required Sales is

$ 219,571

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