Tiago makes three models of camera lens. Its product mix and contribution margin
ID: 2542556 • Letter: T
Question
Tiago makes three models of camera lens. Its product mix and contribution margin per unit follow:
Percentage of Unit sales Contribution Margin per unit
Lens A 38 % $ 34
Lens B 31% $ 26
Lens C 31% $39
Suppose the product mix has shifted to 43/29/28. Required:
1. Determine the new weighted-average contribution margin per unit. (Round your intermediate calculation to 2 decimal places. Round your answer to 2 decimal places.)
2. Determine the number of units of each product that Tiago must sell to break even if fixed costs are $192,000. (Round intermediate calculations to nearest whole number. Round your answers up to the next whole number.)
3. Determine how many units of each product must be sold to generate a profit of $78,000. (Round intermediate calculations to nearest whole number. Round your answers up to the next whole number.)
Explanation / Answer
1.
Weighted average Contribution margin per unit = (Lens A contribution margin per unit * product mix) + (Lens B contribution margin per unit * product mix) + (Lens C contribution margin per unit * product mix)
= (34 * 43%) + (26 * 29%) + (39 * 28%)
= 14.62 + 7.54 + 10.92
= 33.08
2.
Total number of units to be sold to breakeven = Fixed costs / Weighted average Contribution margin per unit
= 192,000 / 33.08
= 5,804
Number of units of Lens A that Tiago must sell to breakeven = 5,804 * 43% = 2,496
Number of units of Lens B that Tiago must sell to breakeven = 5,804 * 29% = 1,683
Number of units of Lens C that Tiago must sell to breakeven = 5,804 * 28% = 1,625
3.
Total number of units to be sold to generate desired profit = (Fixed costs + desired profit) / Weighted average Contribution margin per unit
= (192,000 + 78,000) / 33.08
= 8,162
Number of units of Lens A that Tiago must sell to attain desired profit = 8,162 * 43% = 3,510
Number of units of Lens B that Tiago must sell to attain desired profit = 8,162 * 29% = 2,367
Number of units of Lens C that Tiago must sell to attain desired profit = 8,162 * 28% = 2,285
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