Express Delivery is a rapidly growing delivery service. Last year, 80% of its re

Question

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% 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 $13,825,000.

(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.)

Total Break Even Sales

$

Sale of mail pouches and small boxes

$

Sale of non-standard boxes

$

(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that 60% 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.)

Total Break Even Sales

$

Sale of mail pouches and small boxes

$

Sale of non-standard boxes

$

(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.)

Total Break Even Sales

$

Sale of mail pouches and small boxes

$

Sale of non-standard boxes

$

(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that 60% 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.)

Total Break Even Sales

$

Sale of mail pouches and small boxes

$

Sale of non-standard boxes

$

Explanation / Answer

For Break even company needs 138,25,000 Dollars

Scenario 1: Let S be Sales

(.80*.20)S + (.20*.70)S= 138,25,000

.16S+.14S=13825000

S=460,83,333 Dollars

Sales from standard= 460,83,333*.80= 36,86,6667 Dollars

Sales from Non Standard= 460,83,333*.20= 92,16,667 Dollars

Scenario 2:

Scenario 1: Let S be Sales

(.40*.20)S + (.60*.70)S= 138,25,000

.08S+.42S=13825000

S=276,50,000 Dollars

Sales from standard= 276,50,000*.40= 110,60,000 Dollars

Sales from Non Standard= 276,50,000*.60= 165,90,000 Dollars

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