18. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sa

Question

18. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $3,330,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
Reference: Ref 6-2

What will sales be for the Sporting Goods Division at the break-even point?
A) $2,700,000
B) $3,150,000
C) $5,033,721
D) $5,850,000

19. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $3,330,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
Reference: Ref 6-2

What will be the total contribution margin at the break-even point?
A) $2,865,350
B) $3,330,000
C) $3,360,000
D) $3,870,000

20. In 2010, Logan sold 1,000 units at $500 each, and earned net income of $50,000. Variable expenses were $300 per unit, and fixed expenses were $150,000. The same selling price is expected for 2011. Logan's variable cost per unit will rise by 10% in 2011 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000. How many units must Logan sell in 2011 to maintain the same income level as 2010?
A) 794
B) 971
C) 1,176
D) 1,088

Explanation / Answer

1) Calculating the Weighted-average contribution marign ratio:           Sporting Goods Division               Sports gear (CM ratio * Sales mix percentge) + (CM ratio * Sales Mix percentage) = Weighted-average CM ratio (0.30 * 0.65) + (0.50 * 0.35) = Weighted-average CM ratio 0.195 + 0.175 = Weighted-average CM ratio            0.37 = Weighted-average CM ratio Break-even point in Dollars = Fixed costs / Weighted-average CM ratio                                           = $3,330,000 / 0.37                                           = $9,000,000 For Sporting Division, the Break-even sales dollar is 65% of total break-even sales. 65% of $9,000,000 = $5,850,000 Therefore, the correct option is D) $5,850,000 19) The total contribution margin is calculated as: Weighted-average contribution margin ratio = Contribution margin / Break-even sales                                                          0.37 = CM / $9,000,000                                                           CM = $3,330,000 Therefore, the correct option is B) 3,330,000. 20) Net income for 2011: Sales (1000 * $500)                                $500,000 (-) VC (1000 * $330)                               $330,000 ------------------------------------------------------ Contribution margin                                   $170,000 (-) Fixed costs ($150,000 - $15,000)        $135,000 ------------------------------------------------------ Net income                                               $35,000 ------------------------------------------------------ Calculating the number of units to be sold to earn a net income of $50,000 in 2011: Number of units to be sold = (Fixed expenses + Target income) / Unit Contribution margin                                          = ($135,000 + $50,000) / $170                                          = 1088 units Therefore, the correct option is D) 1,088 units.                         

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