Hobby Shop Incorporated produces three different models with the following annua

Question

Hobby Shop Incorporated produces three different models with the following annual data (this is the base case) Plane Car Boat Total Selling price per unit 20 14 24 Variable cost per unit 5 7 8 Expected unit sales 30,000 50,000 20,000 100,000 Sales mix % 30% 50% 20% 100% Fixed costs 650,000 Assume the sales mix remains the same at all levels of sales except for requirements j

e Calculate the weighted average contribution margin ratio.

f Find the break-even point in sales dollars.

g What amount of sales dollars is required to earn an annual profit of $400,000?  

j Assume the company has a limited number of labor hours available in production, and management would like to make efficient use of these labor hours. The Plane product requires 4 labor hours per unit, the Car product requires 3 labor hours per unit, and the Boat product requires 5 hours per unit. The company sells everything it produces. Based on this information, calculate the contribution margin per labor hour for each model (round to the nearest cent), and determine the top two models the company would prefer to sell to maximize overall company profit

Explanation / Answer

Answer e. Plane Car Boat Total Sales in Units            30,000            50,000            20,000              100,000 SP per Unit                    20                    14                    24 Sales          600,000          700,000          480,000          1,780,000 Variable Cost          150,000          350,000          160,000              660,000 Total Contribution          450,000          350,000          320,000          1,120,000 Weighted Avg. Contribution Margin ratio = $1,120,000 (Total Contribution) / $1,780,000 (Total sales) Weighted Avg. Contribution Margin ratio = 62.92% Answer f. BEP (In Sales $) = Fixed Cost / Contribution Margin Ratio BEP (In Sales $) = $650,000 / 62.92% BEP (In Sales $) = $1,033,035.71 or say $1,033,036 (Approx) Answer g. BEP (In Sale $ + Profit) = (Fixed Cost + Profit) / Contribution Margin Ratio BEP (In Sale $ + Profit) = ($650,000 + $400,000) / 62.92% BEP (In Sale $ + Profit) = $1,668,750 (Approx.) Answer j. Plane Car Boat SP per Unit              20.00              14.00              24.00 Variable Cost per Unit                 5.00                 7.00                 8.00 Contribution per Unit              15.00                 7.00              16.00 Labour Hour required per Unit                 4.00                 3.00                 5.00 Contribtion per Lab Hour                 3.75                 2.33                 3.20 Ranking I III II Top two models to maximize the profit: 1. Plane 2. Boat

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