Financial and Managerial Accounting - With CengageNow
Financial and Managerial Accounting - With CengageNow
14th Edition
ISBN: 9781337577809
Author: WARREN
Publisher: CENGAGE L
Question
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Chapter 19, Problem 19.5APR

1.

To determine

Sales mix: It refers to the relative distribution of the total sales among the number of products sold by a company. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

the break-even point in sales units for the overall Product E for the current year.

1.

Expert Solution
Check Mark

Explanation of Solution

Determine the break-even point in sales units for the overall Product E.

Fixed cost =$2,498,600

Contribution margin per unit =$620 per unit (3)

Break-evenpointinSales(units)forProductE] =FixedCostsContributionMarginperunit=$2,498,600$620=4,030units

Working notes:

Note: For break-even analysis, the Product-Laptops and Product-Tablets are considered as the components of one overall company’s Product E.

Determine the selling price per unit of Product E.

SellingpriceperunitofProductE]=(SellingpriceperunitofLaptops×salesmixofLaptops)+(SellingpriceperunitofTablets×salesmixofTablets)=($1,600perunit×40%)+($850perunit×60%)=$640perunit+$510perunit=$1,150perunit (1)

Determine the variable cost per unit of Product E.

VariablecostperunitofProductE]=(VariablecostperunitofLaptops×salesmixofLaptops)+(VariablecostperunitofTablets×salesmixofTablets)=($800perunit×40%)+($350perunit×60%)=$320perunit+$210perunit=$530perunit (2)

Determine the unit contribution margin of Product E.

UnitContributionMarginofProductE]=(Sellingpriceperunit)(Variablecostperunit)=$1,150perunit(1)$530perunit(2)=$620perunit (3)

Conclusion

Therefore, the break-even point in sales units for the overall Product E for the current year is 4,030 units.

2.

To determine

the break-even sales (units) for Product-Laptops and Product-Tablets.

2.

Expert Solution
Check Mark

Explanation of Solution

Determine the break-even point in sales units:

For Product-Laptops

Break-even point in sales units for Product E =4,030 units (refer Part a)

Sales Mix for Product Laptops =40%

Break-evenpointinSales(units)forProductLaptops] =(Break-evenpointinSales(units)forProductE)×(SalesmixforProductLaptops)=4,030units×40%=1,612units

For Product-Tablets

Break-even point in sales units for Product E =4,030 units (refer Part a)

Sales Mix for Product Tablets =60%

Break-evenpointinSales(units)forProductTablets] =(Break-evenpointinSales(units)forProductE)×(SalesmixforProductTablets)=4,030units×60%=2,418units

Conclusion

Therefore, the break-even point in sales units for the Product Laptops is 1,612 units and for the Product Tablets is 2,418 units.

3.

To determine

To compare: the break-even point with that in Part (1).

3.

Expert Solution
Check Mark

Explanation of Solution

The break-even point calculated in (1) with a sales mix of 50% laptops and 50% tablets is 3,844 units. It is less than the break-even point of 4,030 units calculated in Part 1.

The reason for the difference is the sales mix which is allocated at a higher percentage to the laptops (50%) and tablets (50%) in the present case. It resulted in the higher contribution margin per unit of $650 per unit than in Part 1 ($620 per unit). Thus, it decreases the break-even point of sales (units) in the present case.

Working notes:

Determine the break-even point in sales units for the overall Product E.

Fixed cost =$2,498,600

Contribution margin per unit =$620 per unit (7)

Break-evenpointinSales(units)forProductE] =FixedCostsContributionMarginperunit=$2,498,600$650=3,844units (4)

Note: For break-even analysis, the Product-Laptops and Product-Tablets are considered as the components of one overall company’s Product E.

Determine the selling price per unit of Product E.

SellingpriceperunitofProductE]=(SellingpriceperunitofLaptops×salesmixofLaptops)+(SellingpriceperunitofTablets×salesmixofTablets)=($1,600perunit×50%)+($850perunit×50%)=$800perunit+$425perunit=$1,225perunit (5)

Determine the variable cost per unit of Product E.

VariablecostperunitofProductE]=(VariablecostperunitofLaptops×salesmixofLaptops)+(VariablecostperunitofTablets×salesmixofTablets)=($800perunit×50%)+($350perunit×50%)=$400perunit+$175perunit=$575perunit (6)

Determine the unit contribution margin of Product E.

UnitContributionMarginofProductE]=(Sellingpriceperunit)(Variablecostperunit)=$1,225perunit(5)$575perunit(6)=$650perunit (7)

Determine the break-even point in sales units:

For Product-Laptops

Break-even point in sales units for Product E =3,844 units (4)

Sales Mix for Product Laptops =50%

Break-evenpointinSales(units)forProductLaptops] =(Break-evenpointinSales(units)forProductE)×(SalesmixforProductLaptops)=3,844units×50%=1,922units (8)

For Product-Tablets

Break-even point in sales units for Product E =3,844 units (4)

Sales Mix for Product Tablets =50%

Break-evenpointinSales(units)forProductTablets] =(Break-evenpointinSales(units)forProductE)×(SalesmixforProductTablets)=3,844units×50%=1,922units (9)

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Chapter 19 Solutions

Financial and Managerial Accounting - With CengageNow

Ch. 19 - High-low method The manufacturing costs of...Ch. 19 - Contribution margin Lanning Company sells 160,000...Ch. 19 - Prob. 19.3BECh. 19 - Prob. 19.4BECh. 19 - Prob. 19.5BECh. 19 - Prob. 19.6BECh. 19 - Margin of safety Liu Company has sales of...Ch. 19 - Classify costs Following is a list of various...Ch. 19 - Identify cost graphs The following cost graphs...Ch. 19 - Prob. 19.3EXCh. 19 - Identify activity bases From the following list of...Ch. 19 - Identify fixed and variable costs Intuit Inc....Ch. 19 - Prob. 19.6EXCh. 19 - High-low method Ziegler Inc. has decided to use...Ch. 19 - High-low method for a service company Boston...Ch. 19 - Contribution margin ratio A. Young Company budgets...Ch. 19 - Contribution margin and contribution margin ratio...Ch. 19 - Prob. 19.11EXCh. 19 - Prob. 19.12EXCh. 19 - Break-even sales Currently, the unit selling price...Ch. 19 - Prob. 19.14EXCh. 19 - Prob. 19.15EXCh. 19 - Break even analysis for a service company Sprint...Ch. 19 - Prob. 19.17EXCh. 19 - Prob. 19.18EXCh. 19 - Prob. 19.19EXCh. 19 - Prob. 19.20EXCh. 19 - Prob. 19.21EXCh. 19 - Break-even sales and sales mix for a service...Ch. 19 - Margin of safety A. If Canace Company, with a...Ch. 19 - Prob. 19.24EXCh. 19 - Operating leverage Beck Inc. and Bryant Inc. have...Ch. 19 - Classify costs Seymour Clothing Co. manufactures a...Ch. 19 - Break-even sales under present and proposed...Ch. 19 - Prob. 19.3APRCh. 19 - Prob. 19.4APRCh. 19 - Prob. 19.5APRCh. 19 - Contribution margin, break even sales,...Ch. 19 - Classify costs Cromwell Furniture Company...Ch. 19 - Prob. 19.2BPRCh. 19 - Break even sales and cost-volume-profit chart For...Ch. 19 - Prob. 19.4BPRCh. 19 - Sales mix and break even sales Data related to the...Ch. 19 - Prob. 19.6BPRCh. 19 - Prob. 1ADMCh. 19 - Break-even subscribers for a video service Star...Ch. 19 - Prob. 3ADMCh. 19 - Prob. 19.1TIFCh. 19 - Prob. 19.3TIF
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