Express Delivery is a rapidly growing delivery service. Last year, 80% of its re
ID: 2538263 • Letter: E
Question
Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% 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 $13,426,000.
(a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)
(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that 60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company’s break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)
Explanation / Answer
a Weighted-Average Contribution Margin Ratio =(80%*20%)+(20%*70%)= 30% Total break-even sales = 13426000/30%= $44753333 Sale of mail pouches and small boxes = 44753333*80%= 35802666 or $35802667 Sale of non-standard boxes = 44753333*20%= $8950667 b Weighted-Average Contribution Margin Ratio =(40%*20%)+(60%*70%)= 50% Total break-even sales = 13426000/50%= $26852000 Sale of mail pouches and small boxes = 26852000*40%= 10740800 Sale of non-standard boxes = 26852000*60%= $16111200
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