Express Delivery is a rapidly growing delivery service. Last year, 84% of its re

Question

Express Delivery is a rapidly growing delivery service. Last year, 84% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 15% contribution margin). The other 16% of its revenue came from delivering non-standardized boxes (which provides a 64% 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 $12,920,000. 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.) The company's management would like to hold its fixed costs constant but shift its sales mix so that 64% 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

Part I:

Weighted Contribution margin = [15 x 0.84] + [64 x 0.16]

= 22.84%

Breakeven Sales in $ = Fixed Cost / Weighted Contribution margin

= 12920000 / 0.2284

= $56567426

Sale of mail pouches and small boxes = 56567426 x 0.84 = $47516638

Sale of Non- Standard Boxes = 56567426 x 0.16 = $9050788

Part II:

Weighted Contribution margin = [15 x 0.64] + [64 x 0.36]

= 32.64%

Breakeven Sales in $ = Fixed Cost / Weighted Contribution margin

= 12920000 / 0.3264

= $39583333

Sale of mail pouches and small boxes = 39583333 x 0.64 = $2533333

Sale of Non- Standard Boxes = 39583333 x 0.26 = $14250000

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