Assume that Ocean King Products sells three varieties of canned seafood with the

Question

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs: Sellng Price Variable Selling Price Cot per Case Cost Fixed Cost per Month par Case Variety 1 Veriety 2 Variety 3 Entire finm 15 15 $48,600 The sales mix (in cas88) is 40 percent Variaty 1, 35 percant Variety 2, and 25 percent Variaty 3. Required: a. At what 8ales 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.)

Explanation / Answer

Solution a:

Fixed costs per month = $48,600

Breakeven sales units= Fixed cost / weighted average contribution margin ratio = $48,600 / 20.448179% = $237,674

Solution b:

Desired after tax income = $51,090

Desired before tax income = $51,090 / (1-0.35) = 78,600

Desired sales revenue per month to earn desired income = (Fixed cost + Desired before tax income) / Weighted average contribution margin ratio

= ($48,600 +$78,600) / 20.448179%

= $622,060

Computation of weighted average contribution margin ratio - Ocean King Products Particualrs Variety 1 Variety 2 Variety 3 Total Selling price per unit $16.00 $17.00 $22.00 Variable cost per unit $13.00 $15.00 $15.00 Contribution margin per unit $3.00 $2.00 $7.00 Sales Mix 40% 35% 25% Weighted average contribution per unit $1.20 $0.70 $1.75 $3.65 Weighted average selling price per unit $6.40 $5.95 $5.50 $17.85 Weighted average contribution margin ratio 20.45%

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