Sales mix, three products. The Ronowski Company has three ...

[geodog55]

Sales mix, three products.
 
  The Ronowski Company has three product lines of beltsA, B, and C with contribution margins of 3, 2, and 1, respectively.
 
  The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company's fixed costs for the period are 255,000.
 
  Required:
  1. What is the company's breakeven point in units, assuming that the given sales mix is maintained?
  2. If the sales mix is maintained, what is the total contribution margin when 200,000 units are sold? What is the operating income?
  3. What would operating income be if 20,000 units of A, 80,000 units of B, and 100,000 units of C were sold? What is the new breakeven point in units if these relationships persist in the next period?

Question 2

Palmer Hand Clinic has the following accounts and balances: Cash, 2,350 Accounts Receivable, 280 Professional Equipment, 1,200 Office Equipment, 6,700 Accounts Payable, 4,380 P. Palmer, Capital, 2,000 Income from Services, 6,000 Rent Expense, 1,850 What is the amount of owner's equity?
 a. 6,150
  b. 2,000
  c. 8,000
  d. 4,150

[scottmt]

Answer to Question 1

1. Sales of A, B, and C are in ratio 20,000 : 100,000 : 80,000. So for every 1 unit of A, 5 (100,000  20,000) units of B are sold, and 4 (80,000  20,000) units of C are sold.

Contribution margin of the bundle = 1  3 + 5  2 + 4  1 = 3 + 10 + 4 = 17
Breakeven point in bundles = = 15,000 bundles
Breakeven point in units is:
Product A: 15,000 bundles  1 unit per bundle 15,000 units
Product B: 15,000 bundles  5 units per bundle 75,000 units
Product C: 15,000 bundles  4 units per bundle 60,000 units
Total number of units to breakeven 150,000 units

Alternatively,
Let Q = Number of units of A to break even
5Q = Number of units of B to break even
4Q = Number of units of C to break even

Contribution margin  Fixed costs = Zero operating income

3Q + 2(5Q) + 1(4Q)  255,000 = 0
17Q = 255,000
Q = 15,000 (255,000  17) units of A
5Q = 75,000 units of B
4Q = 60,000 units of C
Total = 150,000 units

2. Contribution margin:
A: 20,000  3  60,000
B: 100,000  2 200,000
C: 80,000  1 80,000
Contribution margin 340,000
Fixed costs 255,000
Operating income  85,000

3. Contribution margin
A: 20,000  3  60,000
B: 80,000  2 160,000
C: 100,000  1 100,000
Contribution margin 320,000
Fixed costs 255,000
Operating income  65,000

Sales of A, B, and C are in ratio 20,000 : 80,000 : 100,000. So for every 1 unit of A, 4 (80,000  20,000) units of B and 5 (100,000  20,000) units of C are sold.

Contribution margin of the bundle = 1  3 + 4  2 + 5  1 = 3 + 8 + 5 = 16
Breakeven point in bundles = = 15,938 bundles (rounded up)
Breakeven point in units is:
Product A: 15,938 bundles  1 unit per bundle 15,938 units
Product B: 15,938 bundles  4 units per bundle 63,752 units
Product C: 15,938 bundles  5 units per bundle 79,690 units
Total number of units to breakeven 159,380 units

Alternatively,
Let Q = Number of units of A to break even
4Q = Number of units of B to break even
5Q = Number of units of C to break even

Contribution margin  Fixed costs = Breakeven point

3Q + 2(4Q) + 1(5Q)  255,000 = 0
16Q = 255,000
Q = 15,938 (255,000  16) units of A (rounded up)
4Q = 63,752 units of B
5Q = 79,690 units of C
Total = 159,380 units

Breakeven point increases because the new mix contains less of the higher contribution margin per unit, product B, and more of the lower contribution margin per unit, product C.

Answer to Question 2

A

[geodog55]

Thank you

[scottmt]

Happy to help you