Malibu Corporation has monthly fixed costs of $66,000. It sells two products for

Question

Malibu Corporation has monthly fixed costs of $66,000. 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

Calculation of Contribution margin ratio S.No Particulars Product 1 Product 2 (a) Selling Price 15 20 (b) Contribution margin 9 4 (c ) Contribution margin ratio [[(b)/(c )]*100] 60% 20% Answer to part 1 Particulars Product 1 Product 2 Total Contribution Margin ratio 60% 20% Relative sales mix 30% 70% Contribution margin ratio*Realtive sales mix 18% 14% 32% Calculation of monthly sales revenue required to break even Fixed costs 66000 Total Contribution margin ratio*Realtive sales mix 32% Monthly sales revenue required to break even (66000/32%) 206250 Answer to part 2 Particulars Product 1 Product 2 Total Contribution Margin ratio 60% 20% Relative sales mix 20% 80% Contribution margin ratio*Realtive sales mix 12% 16% 28% Calculation of monthly sales revenue required to earn a monthly operating Income of $ 16000. Fixed costs 66000 Target Income 16000 Total Contribution margin ratio*Realtive sales mix 28% Monthly sales revenue required to break even (66000+16000/28%) 292857

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