Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating
ID: 2351854 • Letter: M
Question
Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating IncomeBasu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:
The selling prices are $30 for the basic sled and $60 for the aerosled.
1. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole.
Basic units
Aero units
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole.
Basic units
Aero units
3. Conceptual Connection: Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an additional $195,000, and some of the potential purchasers of basic sleds would switch to aerosleds. In total, sales of aerosleds would increase by 12,000 units, and sales of basic sleds would decrease by 5,000 units. Would Basu be better or worse off with this strategy? Round your answer to the nearest dollar.
$
Explanation / Answer
Based on the projected income,
Units of basic sled sold = 3000000/30 = 100000 units
Units of Aerosled sold = 2400000/60 = 40000 units
Sales mix = 10:4 = 5:2
Contribution per unit:
Basic sled = 2000000/100000 = $20
Aerosled = 1400000/40000 = $35
Contribution per mix = 20 x 5 + 35 x 2= $170
Total Fixed Cost = 778000 + 650000 = $1428000
Breakeven in mixes = 1428000/170 = 8400 mixes
Thus, breakeven units
Basic sled = 8400 x 5 = 42000 units
Aerosled= 8400 x 2 = 16800 units
====================================================================
Sales mix = 5:3
Contibution per mix = 20 x 5 + 35 x 3 = $205
Breakeven in mixes = 1428000/205 = 6966 mixes
Thus, breake ven units
Basic sled = 6966 x 5 = 34830 units
Aerosled= 6966 x 3 = 20898 units
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After advertising, total fixed cost = 1428000 + 195000 = $1623000
Units of basic sled sold = 100000 -5000 = 95000 units
Units of Aerosled sold = 40000 + 12000 = 52000 units
Total contribution = 95000 x 20 + 52000 x 35 = $3720000
Total income = 3720000 - 1623000 = $2097000
Before advertising, total income = 1222000 + 750000 = $1972000
BETTER OFF: 2097000 - 1972000 = $125000
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