PROBLEM 4-12. Multiproduct CVP [L2] Fidelity Multimedia sells audio and video eq

Question

PROBLEM 4-12. Multiproduct CVP [L2] Fidelity Multimedia sells audio and video equipment and car stereo products. After performing a study of fixed and variable costs in the prior year, the company prepared a product-line profit statement as follows: Fidelity Multimedia Profitability Analysis For the Year Ended December 31, 2017 Audio Video Car Total Sales Less variable costs: $3,250,000 $1,950,000 $1,300,000 $6,500,000 1,920,000 1374,000 617,000 59,000 3,911,000 Cost of merchandise Salary, part-time staff Total variable costs Contribution margin Less direct fixed costs: 192,500 2,112,500 1,137,500 108,000 1,482,000 468,000 359,500 4,270,500 624,000 2229,500 240,000 220,000 785,000 Salary, full-time staff Total Less common fixed costs: 325,000 s 812.500 228,000 404,000 $1444,500 Advertising Utilities Other administrative costs 115,000 25,000 570,000 710,000 $ 734,500 Total common fixed costs Profit

Explanation / Answer

(a)

Contribution Margin Ratio = Contribution margin / Sales

(b)

Contribution Margin Ratio x Increased Sales = Increase in Contribution Margin = Increase in profit (as fixed cost is not changing)

Based on the maximum % increase in profit, the 'Car' line should be recemmended for expanding.

(c)

Break-evel level in dollar value = (Direct Fixed Cost + Common Fixed Cost)/ Contribution margin ratio

Contribution margin ratio for the entire company = $2229500 / $6500000 = 0.343

Break-evel level in dollar value = ($785000+$710000) / 0.343 = $4,358,600

(d)

For a profit of $1,800,000, the contribution margin required = Fixed Cost + Profit = $785000+$710000+$1,800,000 = $3,295,000

Contribution margin ratio for the entire company = 0.343

So, the sales required = $3,295,000 / 0.343 = $9,606,414

(e)

The ratio of sales will be maintained so,

Sales of Audio = $3250000 x $9606414 / $6500000 = $4803207
Sales of Video = $1950000 x $9606414 / $6500000 = $2881924
Sales of Car = $1300000 x $9606414 / $6500000 = $1921283

Audio Video Car Sales $3,250,000 $1,950,000 $1,300,000 Var. Cost $2,112,500 $1,482,000 $676,000 Cont. Margin $1,137,500 $468,000 $624,000 Cont. margin ratio 0.350 0.240 0.480

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.