Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calo
ID: 2578727 • Letter: R
Question
Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company’s total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold’s monthly fixed costs average $609,500.
1. What is the company’s monthly break-even point expressed in sales dollars? $__________
2. What monthly sales level must be achieved for Rhinefold to earn a monthly operating income of $350,000? $__________
3. If Rhinefold generates $1,400,000 in monthly sales, it will earn a monthly operating income of $__________.
4. Assume Rhinefold’s margin of safety was $300,000 in May. What was the company’s operating income in May? $__________.
5. If Rhinefold’s monthly fixed costs increase by $8,500, what level of monthly sales revenue will be required to break-even? $__________.
Explanation / Answer
On an assumed 100 of total sales
Overall contribution margin =85/100=85%
1. Monthly breakeven point = Fixed costs/Contribution margin
= 609500/65%
=937692.3
2. Monthly operating income required = 350,000
Contribution is therefore 350000+609500=959500
Sales required = 959500/65%= 1476153.8
3.
Monthly operating income of 300500.
4. Margin of safety = Sales revenue - Breakeven sales
300000= Sales revenue - 937692.3
Sales revenue = 1237692.3
Operating profit = (65%*1237692.3)- 609500
= 195000
5. New breakeven sales = (609500+8500)/65%
= 950769.23
Particulars Reduced calorie Regular beer Total Sales revenue 25 75 100 Less: Variable costs (5) (30) (35) Contribution (80%*25)= 20 (60%*75)= 45 65 Less: fixed costs Operating incomeRelated Questions
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