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Lecture

jan 16 2014 bu247

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Department
Business
Course
BU247
Professor
Esther Maier
Semester
Winter

Description
January 16, 2014 Problem 2 -30 A&Z Company Domestic International Total Price per unit $50 $40 Variable cost per unit $30 $16 Contribution Margin $20 $24 Expected sales mix 300 000 200 000 500 000 60% 40% Weighted Average CM 0.6 x $20 = $12 0.4 x $24 = $9.60 $21.60 Profit = $200 000 units 180 000 120 000 300 000 Because of the increased advertising. A&Z expects to sell 300 000 units domestically and 200 000 units internationally next year Required Using the expected sales mix, determine the number of units that A&Z must sell in each market in order to earn income of $200 000 next year $200 000 = $21.60X – ($5 000 000 + $1 280 000 $200 000 + 6 280 000 = $21.60X X= $6480 000/$2160X = 300 000 Problem 2 -31 Florida Favourites Company Alligators Dolphins Total Sales Price $20 $25 Variable Costs $8 $10 Contribution Margin $12 $15 Expected sales mix (a) 140 000 60 000 200 000 70% 30% Weighted average CM 0.7x$12+ 0.3+$15= $12.90 Break Even 70 000 30 000 $1290000/$12.90 = 100 000 units Expected sales mix (b) 60 000 140 000 200 000 30% 70% Weighted Average CM 0.3 x $12+ 0.7 x $15 $14.10 Breakeven 27 447 64 043 1290000/$14.10 = 91489.4 or 91490 units a) Suppose the company currently sells 140 000 alligators per year and 60 000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even each year? b) Suppose the company currently sells 60 000 alligators and 140 000 dolphins must the company sell to break even each year? c) Explain why the total number of toys needed to break even in part (A) is the same or different than the total number in part (b) • the breakeven for part b is smaller than the break even for part a because the contribution margin for dolphins is higher than the contribution margin for  alligators. Therefore, this has an effect on the breakeven point. Under scenario b, we have to sell less to break even. Problem 2-53 Johnson Company and Smith Company Cost Category Johnson Company Smith Company Selling price per ride $30 $30 Variable costs per unit $24 $15 Contribution margin/ride $6 $15 Fixed Costs per year $300 000 $1 500 000 Breakeven (rides) $300 000/ $6 = 50 000 $1 500 000/$15= 100 000 Profit function $6X - $300 000 15X - $1 500 000 Point of indifference (rides) $6X - $300 000 = $15X - $1 500 000 $9X = $1 200 000 X = 133 333.33 **at this point, it does not matter which company is chosen because the profit is the same for both companies **before the indifference point, it is best to go with Johnson company **after the indifference point, it is best to go with Smith company If no sales then profit/ (loss) = $300 000 $1 500 000 If you do not know the forecast of the company it is better to choose the higher variable cost rather than high fixed cost for a company since you are able to lower variable cost easily Problem 2 – 54 Capetini Capacitor Company Last month, Capetini Company sold capacitors to its distributors for $250 per capacitor. The sales level of 3000 capacitors per month was less than the single shift capacity of 4 400 capacitors at its plant in San Diego. Variable production costs were $100 per capacitor and
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