Waterways Continuing Problem (This is a continuation of the Waterways Problem fr

ID: 2570113 • Letter: W

Question

Waterways Continuing Problem (This is a continuation of the Waterways Problem from Chapters 14 through 18.) WCP19 Part 1 Waterways has a sales mix of sprinklers, valves, and controllers as follows Annual expected sales: Sale of sprinklers Sale of valves Sale of controllers 460,000 units at $26.50 1,480,000 units at $11.20 60,000 units at $42.50 Variable manufacturing cost per unit Sprinklers Valves Controllers $13.96 S 7.95 $29.75 Fixed manufacturing overhead cost (total) $760,000 Variable selling and administrative expenses per unit Sprinklers Valves Controllers $1.30 $0.50 $3.41 Fixed selling and administrative expenses (total) $1,600,000 Instructions (a) Determine the sales mix based on unit sales for each product (b) Using the annual expected sales for these products, determine the weighted-average unit contribution margin for these three products. (Round to two decimal places.) (c) Assuming the sales mik remains the same, what is the break-even point in units for these products? Part 3 The section of Waterways that produces controllers for the company provided the following information. Sales for month of February 4,000 Variable manufacturing cost per unit: $9.75 Sales price per unit: $42.50 Fixed manufacturing overhead cost (per month for controllers): $81,000 Variable selling and administrative expenses per unit: $3.00 Fixed selling and administrative expenses (per month for controllers): $13,122 Instructions (a) Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product

Explanation / Answer

a. Sales Mix of each product

Total Sales in units = 460,000 + 1,480,000 + 60,000 = 2,000,000

Total sales in $ = $12,190,000 + $16,576,000 + $2,550,000 = $31,316,000

Sales Mix:

Sprinklers in units = 460,000 / 2,000,000 = 23%, In $ = 12,190,000 / 31,316,000 = 38.93%

Valves in units = 1,480,000 / 2,000,000 = 74%, In $ = 16,576,000 / 31,316,000 = 52.93%

Controllers in units = 60,000 / 2,000,000 = 3%, In $ = 2,550,000 / 31,316,000 = 8.14%

b. Calculation of contribution margin for each product

Particulars

Sprinklers

Valves

Controllers

Sales Price

26.50

11.20

42.50

Variable costs:

Manufacturing

13.96

7.95

29.75

Selling & Admin

1.30

0.50

3.41

Contribution Margin

11.24

2.75

9.34

Weighted Average Unit Contribution Margin

Type

Unit Contribution

Sales Mix %

Weighted Average CM

Sprinklers

11.24

23%

2.59

Valves

2.75

74%

2.04

Controllers

9.34

0.28

c. Break-even Point in units

Fixed Costs = $760,000 + $1,600,000 = $2,360,000

Weighted Average Unit CM = $4.91

Break-even point = $2,360,000 / $4.91 = 480,652 units.