Racing Board Corp. sells a snowboard for $720 that it can purchase for $300. It
ID: 2559463 • Letter: R
Question
Racing Board Corp. sells a snowboard for $720 that it can purchase for $300. It has additional variable costs of $120 and a monthly fixed cost of $66,000.
Instructions:
NOTE: Solve each question as a separate and independent situation and show all workings.
1. Calculate the breakeven point in units. (10 points)
2. Racing Board Corp is considering raising its selling price to $747. Calculate the new breakeven in units. (10 points)
3. Racing Board Corp has found a new supplier for the snowboards, who will sell the board to Racing Board Corp for $285. Calculate the new breakeven in units. (10 points)
4. Racing Board Corp has had many requests from customers for bindings to go along with the board. Racing Board Corp believes that for every three boards it sells, it could sell two bindings. Racing Board Corp can purchase the binding for $75 and would incur another $15 in other variable costs for a total variable cost of the bindings of $90. Racing Board Corp can sell the bindings for $165. Total fixed costs should remain the same at $66,000 per month. Calculate the breakeven point in units for each product line-snowboards and bindings. (30 points)
Explanation / Answer
Solution:
Part 1 --- Break Even Point in units
Break Even Point is the level of sales at which costs are equal to sales revenue and profit is zero. In other words, at break even point contribution margins are equal to total fixed cost.
Variable Cost per Unit = Purchase Cost + Additional Variable Cost per unit = $300 + 120 = $420
Unit Selling Price = $720
Contribution Margin per unit = Unit Selling Price 720 – Variable Cost per unit $420 = $300
Break Even Point in units = Total Fixed Cost / Contribution Margin per unit
= $66,000 / 300
= 220 Units
Part 2 – New Break Even Point in units
Contribution Margin per unit = New Unit Selling Price $747 – Variable Cost per unit $420 = 327
Break Even Point in units = Total Fixed Cost 66,000 / Contribution Margin per unit 327
= 201.83 or 202 Units
Par 3 – New Break Even Point
New Variable Cost per unit = New Purchase Price + Additional Variable Cost per unit = 285 + 120 = 405
Contribution Margin Per unit = Unit Selling Price $720 – New Variable Cost per unit $405 = 315
Break Even Point in units = Total Fixed Cost 66,000 / Contribution Margin per unit 315
= 209.52 or 210 units
Part 4 –
Snowboard and Bindings are selling 3 and 2 respectively.
Snowboard Ratio = 3/5 = 0.60
Bindings = 2/5 = 0.40
Calculation of Weighted Average Contribution Margin
Snowboard
Bindings
Total
Unit Selling Price
$720
$165
Variable Cost Per Unit
Purchase Cost per unit
$300
$75
Additional Variable Cost per unit
$120
$15
Total Variable Cost per unit
$420
$90
Contribution Margin Per Unit
$300
$75
x Weight
0.6
0.4
Weighted Average Contribution Margin
180
30
210
Weighted average break even point in units for company = Total Fixed Cost 66,000 / Weighted Avg Contribution Margin per unit 210
= 314.286 Units
Break Even Point in units for Snowboard = 314.286 Units x Weight 0.6 = 188.57 or 189 Units
Break Even Point in units for Bindings = 314.286 Units x Weight 0.4 = 125.7 or 126 Units
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Snowboard
Bindings
Total
Unit Selling Price
$720
$165
Variable Cost Per Unit
Purchase Cost per unit
$300
$75
Additional Variable Cost per unit
$120
$15
Total Variable Cost per unit
$420
$90
Contribution Margin Per Unit
$300
$75
x Weight
0.6
0.4
Weighted Average Contribution Margin
180
30
210
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