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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Suppose that Chillmax Company now sells both pairs of shoes and fabric carryalls. The pairs of shoes are priced at $60 and have variable costs of $21 each. The carryalls are priced at $36 and have variable costs of $9 each. Total fixed cost for Chillmax as a whole equals $91,500 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Chillmax expects to sell 3,500 pairs of shoes and 875 carryalls.

Required:

  1. 1. Form a package of shoes and carryalls based on the sales mix expected for the coming year.
  2. 2. Calculate the break-even point in units for pairs of shoes and for carryalls.
  3. 3. Check your answer by preparing a contribution margin income statement.

1.

To determine

Prepare a package of shoes and carryalls for the next year.

Explanation

Break-Even Point:

The point or situation where the amount of total cost is equivalent to total revenue is known as the break-even point. It is the point where there is no loss or no profit.

The package of bicycle and motorcycle helmet is given below:

Product

Price

($)

A

Unit

Variable

Cost

($)

B

Unit

Contribution

Margin

($)

C

(AB)

Sales Mix

D

Package

Unit

Contribution

Margin ($)

(C×D)

Shoes60213941156
Carryalls369271127

Package

total

    183

Table (1)

Note: The sales mix for shoes and carryalls will be used as 4 and 1 respectively in the rest of the solution.

Working Note:

1

2.

To determine

Compute break-even point in units for pairs of shoes and carryalls.

3.

To determine

Construct a contribution margin income statement to check the answer.

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