LO 6-3, 6-6 PA6-5 Analyzing Multiproduct CVP, Break-Even Point, Target Profit, M

Question

LO 6-3, 6-6 PA6-5 Analyzing Multiproduct CVP, Break-Even Point, Target Profit, Margin of Safety Lindstrom Company produces two fountain pen models. Information about its products follows Sales revenue Less: Variable costs Contribution margin Total units sold Product A $75,000 33,000 $42,000 Product B $125,000 38,000 87.000 5,000 5,000 Lindstrom's fixed costs total $78,500 Required: 1. Determine Lindstrom's weighted-average unit contribution margin and weighted- average contribution margin ratio 2. Calculate Lindstrom's break-even point in units and in sales revenue 3. Calculate the number of units that Lindstrom must sell to earn a $150,000 profit

Explanation / Answer

1 Sales mix percentage: Product A 37.5% =75000/(75000+125000) Product B 62.5% =125000/(75000+125000) Weighted average unit contribution margin=37.5%*(42000/5000)+62.5%*(87000/5000)= $14.025 Weighted average contribution margin ratio=37.5%*(42000/75000)+62.5%*(87000/125000)= 64.5% 2 Break even point in units = 78500/14.025= 5597(rounded off) Break even point in sales revenue = 78500/64.5%= 121705(rounded off) 3 Unit sales required = (78500+150000)/14.025= 16292 (Rounded off)

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