Malibu Corporation has monthly fixed costs of $56,000. It sells two products for

Question

Malibu Corporation has monthly fixed costs of $56,000. It sells two products for which it has provided the following information.

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

a) Calculation of break even sales revenue: Break even sales revenue= Fixed cost/ contribution margin ratio Contribution margin ratio= contribution/sales*100 Contribution margin ratio of product 1= 9/15*100=60% Contribution margin ratio of product 2= 4/20*100=20% Total contribution margin= 60*0.30+20*0.70                                                      =18+14= 32% Break even sales revenue= 56000/0.32= $175000 Break even sales revenue= $175000 b) Calculation of target sales revenue: Target sales revenue= (fixed cost+operating income)/contribution margin ratio Contribution margin ratio of product 1= 9/15*100=60% Contribution margin ratio of product 2= 4/20*100=20% Contributio margin ratio= 60*0.20+20*0.80                                                  = 12+16=28% Target sales revenue= (56000+16000)/0.28                                           = 72000/0.28=257142.86 Target sales revenue= $257143

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.