Question

I need help with this accounting problem.

Sundial, Inc. produces two models of sunglasses-AU and NZ. The sunglasses have the following characteristics Selling price per unit Variable cost per unit Expected units sold per year AU $ 360 $ 60 50,000 NZ S 360 $ 180 75,000 The total fixed costs per year for the company are $5,244,000. Required: a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix is the same at the break-even point, compute the break-even point. c. If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Answer 1

Req a.
			AU	NZ	Total
Sales units		50,000	75,000
Selling price		360	360
Less: Variable cost per unit	60	180
Contribution margin per unit	300	180
Total Contribution		1,50,00,000	1,35,00,000	2,85,00,000
(Sales units* Contribution per unit)
Less: Fixed cost				52,44,000
Anticipated Profits				2,32,56,000
Req b.
			AU	NZ	Total
Sales units		50,000	75,000
Selling price		360	360
Less: Variable cost per unit	60	180
Contribution margin per unit	300	180
Multiply: Mix (2:3)		2	3
Total contribution margin per mix	600	540	1140
Divide: Total Units				5
Weighted contribution per unit			228
Break even units = Fixed cost / Weighted contribution per unit
		5244,000 / 228 = 23,000
Break even units:
Product AU = 23000*2/5=	9200
Product NZ = 23000*3/5 =	13800
Req c.
			AU	NZ	Total
Sales units		50,000	75,000
Selling price		360	360
Less: Variable cost per unit	60	180
Contribution margin per unit	300	180
Multiply: Mix (4:1)		4	1
Total contribution margin per mix	1200	180	1380
Divide: Total Units				5
Weighted contribution per unit			276
Break even units = Fixed cost / Weighted contribution per unit
		5244,000 / 276 = 19,000
Break even units:
Product AU = 19000*4/5=	15200
Product NZ = 19000*1/5 =	3800