E7-32A (similar to) Spesdy Quaccopters plans to sel a standarc cuadoopber oy dra

ID: 2594540 • Letter: E

Question

E7-32A (similar to) Spesdy Quaccopters plans to sel a standarc cuadoopber oy dranej or S50 and a deluxe quadoopterfor S70. Speedy purohases the standard quadcopter for $40 and the deuxequaccopler far $0. Managemert expects to sel two deluxe quascopters far ewery three standard quadccpters. The openy's monn y f eade, panes 8 e 4,7DO How many of 88ch typed gadeaper must Speedy 8 l monNy breakeven? To 89m 59 100? Operating ircoms+ Fixed expenses , Weghed-arg. CM per unit -Dreakeven sales in units Deduct ge contntution unit Chonsa·from any dnor-dawn list and then alck Check Answer.

Explanation / Answer

Speedy

Determination of weighted average contribution margin and break-even sales in units:

Products

Standard Quadcoptor

Deluxe Quadcoptor

Selling price

$60

$70

Variable cost

$40

$60

Contribution margin

$20

$10

sales mix

Weighted average contribution margin = [(3 x20) + (10 x 2)]/5 = $16

Fixed cost = $14,700

Break-even sales in units = fixed cost/weighted average contribution margin per unit

= $14,700/$16 = 918.75

Break-even Sales of Standard Quadcoptor = 918.75 x 3/5 = 551 units

Break-even sales of Deluxe Quadcoptor = 918.75 x 2/5 = 368 units

Determination of number of units to earn a target income of $9,100:

Desired units = (fixed cost + target profit)/weighted average contribution margin

= (14,700 + 9,100)/16 = 23,800/16

Desired units = 1,487.50

Desired units of Standard Quadcoptor = 1,487.50 x 3/5 = 893 units

Desired units of Deluxe Quadcoptor = 1,487.50 x 2/5 = 595 units