CD6 CURRENT DESIGNS Current Designs manufactures two different types of kayak, r

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CD6   CURRENT DESIGNS      Current Designs manufactures two different types of kayak, rotomolded kayaks and composite kayaks. The following information is available for each product line. Rotomolded Composite Sales price/unit $950 $2,000 Variable costs/unit $570 $1,340 The company's fixed costs are $820,000. An analysis of the sales mix identifies that rotomolded kayaks make up 80% of the total units sold. Instructions (a) Determine the weighted-average unit contribution margin for Current Designs. (b) Determine the break-even points in units for Current Designs and identify how many units of each type of kayak will be sold at the break-even point. (Round to the nearest whole number.) (c ) Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units sold. Calculate the total number of units that would need to be sold to earn a net income of $2,000,000 and identify how many units of each type of kayak will be sold at this level of income. (Round to the nearest whole number.) (d) Assume that Current Designs will have sales of $3,000,000 with two-thirds of the sales dollars in rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $660,000 of fixed costs are allocated to the rotomolded kayaks and $160,000 to the composite kayaks, prepare a CVP income statement for each product line. (e ) Using the information in part (d), calculate the degree of operating leverage for each product line and interpret your findings. (Round to two decimal places.) After you have completed CD6, consider the following additional question. 1. Assume that variable cost per unit for the rotomolded kayak and composite kayak changed to $610 and $1,400 respectively. Show impact of these changes on each of the scenarios provided. CD6   CURRENT DESIGNS      Current Designs manufactures two different types of kayak, rotomolded kayaks and composite kayaks. The following information is available for each product line. Rotomolded Composite Sales price/unit $950 $2,000 Variable costs/unit $570 $1,340 The company's fixed costs are $820,000. An analysis of the sales mix identifies that rotomolded kayaks make up 80% of the total units sold. Instructions (a) Determine the weighted-average unit contribution margin for Current Designs. (b) Determine the break-even points in units for Current Designs and identify how many units of each type of kayak will be sold at the break-even point. (Round to the nearest whole number.) (c ) Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units sold. Calculate the total number of units that would need to be sold to earn a net income of $2,000,000 and identify how many units of each type of kayak will be sold at this level of income. (Round to the nearest whole number.) (d) Assume that Current Designs will have sales of $3,000,000 with two-thirds of the sales dollars in rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $660,000 of fixed costs are allocated to the rotomolded kayaks and $160,000 to the composite kayaks, prepare a CVP income statement for each product line. (e ) Using the information in part (d), calculate the degree of operating leverage for each product line and interpret your findings. (Round to two decimal places.)

Explanation / Answer

Data Particulars Rotomolded Composite Sellling price            950.00                        2,000.00 Less: variable costs            570.00                        1,340.00 Contribution            380.00                           660.00 Part a Contribution Weights of contribution=contribution/1040 Weight*contribution Rotomolded            380.00                               0.37                 138.85 Composite            660.00                               0.63                 418.85 Total         1,040.00                 557.69 Part b Formula Break even point Fixed costs/weghted average contribution                        1,470.34 1470 units to be divided into 36:64 Rotomolded            529.20 530 units Composite            940.80 940 units Part c Particulars Rotomolded Composite Total Revenue 52,08,443.27                 22,32,189.97       74,40,633.25 Assuming that total revenue is x, weighted average of contribution is .621x(70%*Contribution as % of sale of Rotomolded+30%*Contribution as % of sale of Composite) Less: variable costs 31,25,065.96                 14,95,567.28       46,20,633.25 Contribution(as % of sales revenue)                0.60                               0.67        0.62 x-.621x=2820000 Contribution 28,20,000.00       28,20,000.00 74,40,633.25        0.38 Less: fixed costs    8,20,000.00 x-0.6x+y-0.67y=2820000 Net income 20,00,000.00 Revenue 52,08,443.27                 22,32,189.97 Divided by the sales price            950.00                        2,000.00 Number of units to be sold         5,482.57                        1,116.09 Part d Particulars Rotomolded Composite Total Revenue 20,00,000.00                 10,00,000.00       30,00,000.00 Less: variable costs 12,00,000.00                   6,70,000.00       18,70,000.00 Contribution(as % of sales revenue)                0.60                               0.67 Contribution    8,00,000.00                   3,30,000.00       11,30,000.00 Less: fixed costs         6,60,000.00 Net income         4,70,000.00

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