Exercise 19-8 Express Delivery is a rapidly growing delivery service. Last year,
ID: 2580978 • Letter: E
Question
Exercise 19-8 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 $13,112,000. (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.) Total break-even sales $ Sale of mail pouches and small boxes $ Sale of non-standard boxes $ (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.) Total break-even sales $ Sale of mail pouches and small boxes $ Sale of non-standardized boxes $
Explanation / Answer
(a)
Weighted average contribution margin ratio = (0.8*0.2) + (0.2*0.7) = 0.3
The company’s break-even point in total sales dollars = Fixed costs / Weighted average contribution margin ratio
= 13,112,000 / 0.3 = 43,706,667
Company's sales provided by sale of mail pouches and small boxes = 43,706,667 * 80% = 34,965,334
Company's sales provided by sale of non-standard boxes = 43,706,667 * 20% = 8,741,333
(b)
Weighted average contribution margin ratio = (0.4*0.2) + (0.6*0.7) = 0.5
The company’s break-even point in total sales dollars = Fixed costs / Weighted average contribution margin ratio
= 13,112,000 / 0.5 = 26,224,000
Company's sales provided by sale of mail pouches and small boxes = 26,224,000 * 0.4 = 10,489,600
Company's sales provided by sale of non-standard boxes = 26,224,000 * 0.6 = 15,734,400
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