Sundial, Inc, produces two models of sunglasses; AU and NZ. The sunglasses have
ID: 2549735 • Letter: S
Question
Sundial, Inc, produces two models of sunglasses; AU and NZ. The sunglasses have the following characteristics; Selling price per unit Variable cost per unit Expected units sold per year60,000 AU $160 60 NZ $160 60,000 40,000 The total fixed costs per year for the company are $2,208,000. Required: What is the anticipated level of profits for the expected sales volumes? Assuming that the product mix is the same at the break-even point, compute the break-even point. If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.? a. b. c.Explanation / Answer
Answer: a Level of profit for the expected sales volumes AU NZ Total Selling price per unit $ 160.00 $ 160.00 Less: Variable cost per unit $ 60.00 $ 80.00 Contribution per unit $ 100.00 (160-60) $ 80.00 (160-80) Expected Units sold per year 60,000.00 40,000.00 Contribution per product $ 6,000,000.00 (60,000*$100) $ 3,200,000.00 (40,000*$80) $ 9,200,000.00 Less: Fixed cost $ 2,208,000.00 Expected profit $ 6,992,000.00 b Break-even point =Fixed cost / Contribution per product mix =$2,208,000 / $92 24,000 Units Units of AU =24000*6/10 14,400 Units Units of NZ =24000*4/10 9,600 Units where, Contribution per product mix = ($100*6+$80*4)/(6+4) $ 92.00 c Break-even point =Fixed cost / Contribution per product mix =$2,208,000 / $96 23,000 Units Units of AU =23000*4/5 18,400 Units Units of NZ =23000*1/5 4,600 Units where, Contribution per product mix = ($100*4+$80*1)/(4+1) $ 96.00
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