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:

The sales mix (in cases) is 60 percent Variety 1, 25 percent Variety 2, and 15 percent Variety 3.

At what sales revenue per month does the company break even? (Do not round your intermediate calculation.)

Suppose the company is subject to a 35 percent tax rate on income. At what sales revenue per month will the company earn $50,245 after taxes assuming the same sales mix? (Do not round your intermediate calculation.)

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs:

Explanation / Answer

a) At break even point, total contribution = Total fixed costs

Let Q be the overall break even point of Ocean King Products. Then productwise proportion at break even will be 0.60 Q, 0.25Q and 0.15 Q

Productwise contribution per unit is $ 3 for Variety 1, $ 2 for Variety 2 and $ 7 for Variety 3

Hence the equation at break even will be 3 x 0.6 Q + 2 x 0.25 Q + 7 x 0.15 Q = $ 48,400

or 3.35Q = 48,400 or Q = 14,447.76 units or 14,448 units

At 14,448 units, Revenue from Variety 1 = 14,448 x 0.60 x 15 = $ 130,032. from Variety 2 = 14,448 x 0.25 x 16 = $ 57,792, and from Variety 3 = 14,448 x 0.15 x 21 = $ 45,511

Hence total revenue at breakeven = 130,032 + 57,792 + 45,511 = $ 233,335

b) If target after tax profit is $ 50,245, then pre tax earnings are $ 77,300

Therefore, using the same logic as above, 3.35Q = 48,400 + 77,300 or Q = 37,523 units

Sales revenue from Variety 1 = 37,523 x 0.60 x 15 = $ 337,707

Sales revenue from Variety 2 = 37,523 x 0.25 x 16 = $ 150,092

Sales revenue from Variety 3 = 37,523 x 0.15 x 21 = $ 118,197

Therefore sales revenue required per month to earn after tax profit of $ 50,245 is $ 605,996

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