Exercise 19-8 (Part Level Submission) Express Delivery is a rapidly growing deli
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Question
Exercise 19-8 (Part Level Submission)
Express Delivery is a rapidly growing delivery service. Last year, 81% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 14% contribution margin). The other 19% of its revenue came from delivering non-standardized boxes (which provides a 64% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $12,560,000.
(a)
Exercise 19-8 (Part Level Submission)
Express Delivery is a rapidly growing delivery service. Last year, 81% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 14% contribution margin). The other 19% of its revenue came from delivering non-standardized boxes (which provides a 64% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $12,560,000.
Explanation / Answer
Weighted average contribution margin = 14 x 81% + 64 x 19%
= 23.50%
Breakeven sales = $1256000/23.50% = 53446808
Sale of mail pouches and small boxes = 53446808 x 81% = 43291914
Sale of non standard boxes = 53446808 x 19% = 10154894
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