BuyFindarrow_forward

Managerial Accounting: The Corners...

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

Solutions

Chapter
Section
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
292 views

Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Costs, Multiple-Product Setting

If both the variable and fixed production costs (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3.

To determine

Compute the units to be sold of canoe and paddle in order to earn a target income of $96,000 if variable and fixed cost associated with canoe increased by 5%.

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 canoe and paddle is given below:

Product

Price

($)

A

Unit

Variable

Cost

($)

B

Unit

Contribution

Margin

($)

C

(AB)

Sales Mix

D

Package

Unit

Contribution

Margin

($)

(C×D)

Canoe500310219011190
Paddle5040104140
Total    230

Table (1)

Use the following formula to calculate number of units to be sold to earn an operating income of $296,400:

Numberofpackages=Targetincome+TotalfixedcostUnitcontributionmargin

Substitute $96,000 for target income, $123,0003 for total fixed cost and $230 for unit contribution margin in the above formula.

Numberofpackages=$96,000+$123,000$230=$219,000$230=952.17or953packages

Therefore, the company must sell 953 packages to earn an operating income of $96,000.

Use the following formula to calculate target units of canoe:

Targetunits=Targetpackages×Sales mix

Substitute 953 packages for break-even packages and 11 for sales mix in the above formula.

Targetunits=953×1=953units

Therefore, the target units of canoe are 953 units.

Use the following formula to compute target units of paddle:

Targetunits=Targetpackages×Sales mix

Substitute 953 units for break-even packages and 41 for sales mix in the above formula.

Targetunits=953×4=3,812units

Therefore, the target units of paddle are 3,812 units.

Note: Values of variable cost and fixed cost are computed in (1MTC).

Working Note:

1. Calculation of sales mix:

Ratio for canoe:

Ratio=NumberofcanoeTotalnumberofitems=3001,500=15

Ratio for paddle:

Ratio=NumberofpaddleTotalnumberofitems=1,2001,500=45

The sales mix ratio for canoe and paddle is 1:4

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Define ERP.

Accounting Information Systems

Suppose you were a member of Company Xs board of directors and chairperson of the companys compensation committ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Why isnt a credit card money?

Economics (MindTap Course List)

Contrast a win-win negotiator with a win-lose negotiator.

Purchasing and Supply Chain Management