Express Delivery is a rapidly growing delivery service. Last year, 82% of its re
ID: 2417971 • Letter: E
Question
Express Delivery is a rapidly growing delivery service. Last year, 82% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 14% contribution margin). The other 18% of its revenue came from delivering non-standardized boxes (which provides a 63% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,700,000.
(a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)
(b) The company’s management would like to hold its fixed costs constant, but shift its sales mix so that 63% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company’s break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)
Explanation / Answer
Ans A Standarised Non Standarised Total Sales B 82% 18% Contribution margin 0.1148 0.1134 sales Mix 0.82 0.18 Weighted Avg. Contribution per unit A $0.0941 $0.02041 Weighted Avg. Contribution MARGIN ratio A/B $0.1148 $0.1134 $0.23 Fixed Cost 1370000 Break even in units = Fixed Cost/Weighted Avg Contribution MARGIN RATIO $6,003,505.70 sales Mix X 0.82 0.18 Total Breakeven in$ Y $6,003,505.70 $6,003,505.70 Ans Product units at breakeven point XxY 4922875 $1080631 $6003506 Contribution Margin of stndarised .82*.14 0.1148 Contribution Margin of Non standarised 63*.18 0.1134 Ans B Standarised Non Standarised Total Sales B 37% 63% Contribution margin 0.0518 0.3969 sales Mix 0.37 0.63 Weighted Avg. Contribution per unit A $0.0192 $0.25005 Weighted Avg. Contribution MARGIN ratio A/B $0.0518 $0.3969 $0.45 Fixed Cost 1370000 Break even in units = Fixed Cost/Weighted Avg Contribution MARGIN RATIO $3,053,264.99 sales Mix X 0.82 0.18 Total Breakeven in$ Y $3,053,264.99 $3,053,264.99 Ans Product units at breakeven point XxY $2503677$ 549588 $3053265 Contribution Margin of stndarised .37*.14 0.0518 Contribution Margin of Non standarised 63*.63 0.3969
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