Question

Problem 3-60 Extensions of the CVP Basic Model-Multiple Products and Taxes (LO 3-4)

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs:

	Selling Price per Case			Variable Cost per Case			Fixed Cost per Month
Variety 1	$	16		$	13			–
Variety 2		17			15			–
Variety 3		22			15			–
Entire firm		–			–		$	48,600

The sales mix (in cases) is 40 percent Variety 1, 35 percent Variety 2, and 25 percent Variety 3.

Required:

a. At what sales revenue per month does the company break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

b. Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $51,090 after taxes assuming the same sales mix? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

Answer 1

	Variety 1	Variety 2	Variety 3	Total
Selling Price per unit	16	17	22	55
Variable cost per unit	13	15	15
Contribution Margin per unit	3	2	7	12
Sales mix	40%	35%	25%
Weighted average Contribution Margin	1.2	0.7	1.75	3.65
Weighted average Sales Revenue	6.4	5.95	5.5	17.85
Weighted average CM Ratio				20.4482%
a.Break even Sales Revenue = Fixed costs/Weighted average CM Ratio
237,674
b. Revenue Required	622,060

1. Variety 1 16 2 Selling Price per unit 3 Variable cost per unit 4. Contribution Margin per unit 5 Sales mix 6 Weighted average Contribution Margin 7 Weighted average Sales Revenue 8 Weighted average CM Ratio 13 =B2-B3 0.4 =B4*B5 =B2*B5 C D E Variety 2 Variety 3 Total 17 22 =SUM(B2:D2) 15 15 =C2-C3 =D2-D3 =SUM(B4:04) 0.35 0.25 =C4*C5 =D4*D5 =SUM(B6:06) =C2*C5 =D2*D5 =SUM(B7:07) =E6/E7 9 10 a.Break even Sales Revenue = Fixed costs/Weighted average CM Ratio 11 =48600/E8 12 13 b. Revenue Required =(51090/0.65 + 48600)/E8