Muscle Beach, Inc., makes three models of high-performance weight-training bench
ID: 2406242 • Letter: M
Question
Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:
a. Calculate the contribution margin ratio of each product. (Round your answers to 1 decimal place.)
b. Calculate the firm's overall contribution margin ratio. (Round your answer to 1 decimal place.)
c. Calculate the firm's monthly break-even point in sales dollars. (Round your intermediate calculations to 1 decimal place.)
d. Calculate the firm's monthly operating income.
e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $280,530 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.
e-2. Would you recommend the elimination of the ProForce model?
f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 497 units per month if the ProForce model is eliminated. What would be the effect on operating income.
f-2. Would you recommend eliminating the ProForce model?
MegaMuscle PowerGym ProForce Selling price per unit $ 136 $ 205 $ 292 Contribution margin per unit 43 76 59 Monthly sales volume—units 2,910 2,040 990 Fixed expenses per month Total of $329,300Explanation / Answer
Answer (a) Calculation of Contribution margin ratio
Mega Muscle
Power gym
Pro force
(A)
Sales Price
$ 136.00
$ 205.00
$ 292.00
(B)
Contribution Margin
$ 43.00
$ 76.00
$ 59.00
(B/A)
Contribution Margin Ratio
31.62%
37.07%
20.21%
Answer (b)
Overall Contribution margin ratio
Mega Muscle
Power gym
Pro force
Total
(A)
Sales Price
$ 136.00
$ 205.00
$ 292.00
$ 633.00
(B)
Contribution Margin
$ 43.00
$ 76.00
$ 59.00
$ 178.00
(B/A)
Contribution Margin Ratio
31.62%
37.07%
20.21%
28.12%
Overall Contribution margin ratio
28.12%
Answer (c )
Breakeven point in sales dollars
Breakeven
Fixed Cost/Contribution margin ratio.
Breakeven
(329300/28.12%)
Breakeven
$ 1171052.632
Answer (d)
Operating Income
Mega Muscle
Power gym
Pro force
Total
sales Revenue
$ 395,760.00
$ 418,200.00
$ 289,080.00
$ 1,103,040.00
Variable Cost
$ 270,630.00
$ 263,160.00
$ 230,670.00
$ 764,460.00
Contribution Margin
$ 125,130.00
$ 155,040.00
$ 58,410.00
$ 338,580.00
Fixed Cost
$ 329,300.00
Net Operating Income
$ 9,280.00
Variable cost is Selling price per unit minus contribution per unit multiplied by units sold.
Students are advised to consider only the total column. Other columns are just for explanation.
Answer (e1)
Operating Income after eliminating pro force
Mega Muscle
Power gym
Total
sales Revenue
$ 395,760.00
$ 418,200.00
$ 813,960.00
Variable Cost
$ 270,630.00
$ 263,160.00
$ 533,790.00
Contribution Margin
$ 125,130.00
$ 155,040.00
$ 280,170.00
Fixed Cost
$ 280,530.00
Net Operating Income
$ (360.00)
Answer (e2)
No.
This is not recommended as it not only decreases operating income but also gives negative income.
Answer (F1)
Operating Income after eliminating pro force (sale of power gym increased)
Mega Muscle
Power gym
Total
sales Revenue
$ 395,760.00
$ 520,085.00
$ 915,845.00
Variable Cost
$ 270,630.00
$ 327,273.00
$ 597,903.00
Contribution Margin
$ 125,130.00
$ 192,812.00
$ 317,942.00
Fixed Cost
$ 280,530.00
Net Operating Income
$ 37,412.00
Answer (F2)
Yes
This Increases the operating income so it is recommended.
Answer (a) Calculation of Contribution margin ratio
Mega Muscle
Power gym
Pro force
(A)
Sales Price
$ 136.00
$ 205.00
$ 292.00
(B)
Contribution Margin
$ 43.00
$ 76.00
$ 59.00
(B/A)
Contribution Margin Ratio
31.62%
37.07%
20.21%
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