Travel On Inc. sells luggage. They sell a duffle bag, a carry-on suitcase and a

Question

Travel On Inc. sells luggage. They sell a duffle bag, a carry-on suitcase and a deluxe suitcase. The price and variable cost for each type of luggage is listed below.

Price

Variable Cost

$100

$ 25

180

40

300

120

?

The total fixed costs for Travel On Inc. equals $60,000. For every 8 duffle bags Travel On Inc sells it sells 3 carry-on suitcases and 1 deluxe suitcase.

Required: Show your calculations!
A.) Calculate the package contribution margin.

B.) Calculate the break-even point in units for duffle bags, carry-on suitcases and deluxe suitcases.

C.) If Travel On Inc. has a target income for the coming year of $300,000, how many packages will company have to sell?

D.) Based on your answer in Part C, prepare a contribution margin income statement for the coming year.

E.) What is the company’s margin of safety in packages?

Price

Variable Cost

$100

$ 25

180

40

300

120

Explanation / Answer

Rreq 1: Package Contribution margin: Duffle Bag Ccarry-on Deluxe Total Selling price 100 180 300 Lless: Variable cost 25 40 120 Contribution margin 75 140 180 Sales mix 8 3 1 Contribution margin for the package 600 420 180 1200 Contribution margin for package: $ 1200 Req 2: Total Fixed cost: $60,000 Contribution per package: $ 1200 Number of packages to be break even = fixed cost / Contribution per package $ 60,000 /1200 = 50 packages Number of units to be break even: Duffle bag (50*8) 400 units Carry-on (50*3) 150 units Deluxe ( 50*1) 50 units Req 3: Desired profit: $ 300,000 Desired Contribution: 300,000+60,000 = 360,000 Target sales in packages: Desired contribution / Contribution per package $ 360,000 /1200 = 300 packages Req 4: Contribution margin Income statement: Total Duffle bag Carry-on Deluxe 300 package 2400 units 900 units 300 units Sales revenue 492000 240000 162000 90000 Less: variable cost 132000 60000 36000 36000 Contribution margin 360000 180000 126000 54000 Less: Fixed cost 60000 Target income 300,000 Req 5: Margin of safety in packages: Net income / contribution per package $300,000 / 1200 = 250 packages

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