Change in Sales Mix and Contribution Margin Head Pops Inc. manufactures two mode

Question

Change in Sales Mix and Contribution Margin

Head Pops Inc. manufactures two models of solar-powered, noise-canceling headphones: Sun Sound and Ear Bling models. The company is operating at less than full capacity. Market research indicates that 18,500 additional Sun Sound and 20,200 additional Ear Bling headphones could be sold. The income from operations by unit of product is as follows:

Prepare an analysis indicating the increase or decrease in total profitability if 18,500 additional Sun Sound and 20,200 additional Ear Bling headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per unit answers to two decimal place.

Sun Sound
Headphones Ear Bling
Headphones Sales price $31.90 $49.80 Variable cost of goods sold 17.90 27.90 Manufacturing margin $14.00 $21.90 Variable selling and administrative expenses 6.40 10.00 Contribution margin $7.60 $11.90 Fixed manufacturing costs 2.90 4.50 Income from operations $4.70 $7.40

Explanation / Answer

Analysis :

Sun Sound Headphones Ear Bling Headphones Unit volume increase 18500 20200 x Contribution margin per unit 7.60 11.90 Increase in profitability 140600 240380

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