Ocean King Products sells three varieties of canned seafood with the following p
ID: 2549738 • Letter: O
Question
Ocean King Products sells three varieties of canned seafood with the following prices and Assume that costs Selling Price per Case Variable Cost per Case Fixed Cost per Month $3 $2 Variety 1 Variety 2 Variety 3 10 $46,200 Entire Firm The sales mix (in cases) is 40% Variety 1, 35% Variety 2 and 25% Variety 3. Required: At what sales revenue per month does the company break even? Suppose the company is subject to a 35% tax rate on income. At what sales revenue per month will the company earn $40,950 after taxes assuming the same sales mix? a. b.Explanation / Answer
Solution:(a):
Weighted average Revenue = (3*0.4)+(5*0.35)+(10*0.25) = $5.45
Weighted average Contribution = [(3-2)*0.4]+[(5-3)*0.35]+[(10-6)*0.25] = $2.1
Weighted average CM % = (2.1*100)/5.45= 38.5321%
Therefore, Break-even revenue = Fixed cost/weighted average CM % = 46200/38.5321% = $119,900
Solution:(b):
After-tax Income = $40,950
Before-tax Income = 40950/(1-0.35) = $63,000
Required sales revenue = (Fixed cost+required profit)/weighted average CM %
= (46200+63000)/38.5321% = $283,400
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