Question

Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics. Chicken Fish Selling price per $ 3.00 $ 4.50 taco Variable cost per 1.50 2.25 taco Expected sales (tacos) 200,000 зее, еее The total fixed costs for the company are $117,000. Required: a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix would be 40 percent chicken and 60 percent fish at the break-even point, compute the break-even volume. c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break-even volume?

Answer 1

a)

Profit = Total revenue - total costs

Total revenue = Price $\times$ Quantity sold

Total revenue = $ 3 $\times$ 200,000 + $ 4.50 $\times$ 300,000 = $ 1,950,000

Total costs = fixed cost + variable costs

Total costs = $ 117,000 + [ $ 1.50 $\times$ 200,000 + $ 2.25 $\times$ 300,000 ] = $ 1,092,000

Profit = $ 1,950,000 - $ 1,092,000

Profit = $ 858,000

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b)

Weighted average unit contribution margin = 0.40 $\times$ ( $ 3 - $ 1.50 ) + 0.60 $\times$ ( $ 4.50 - $ 2.25)

Weighted average unit contribution margin = $ 1.95

Break-even point in units = Fixed cost $\div$ Weighted average unit contribution margin =  $ 117,000 $\div$ $ 1.95

Break-even volume = 60,000 units

Break even volume chicken = 0.40 $\times$ 60,000 = 24,000 units

Break even volume fish = 0.60 $\times$ 60,000 = 36,000 units

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c)

If the product sales mix were to change to four chicken tacos for each fish taco,

Weighted average unit contribution margin = 0.8 $\times$ ( $ 3 - $ 1.50 ) + 0.20 $\times$ ( $ 4.50 - $ 2.25)

Weighted average unit contribution margin = $ 1.65

Break-even volume = Fixed cost $\div$ Weighted average unit contribution margin =  $ 117,000 $\div$ $ 1.65

Break-even volume = 70,909.1 $\approx$ 70,909 units

Break even volume chicken = 0.80 $\times$ 70,909 = 56727 units

Break even volume fish = 0.20 $\times$ 70,909 = 14,182 units