(Multiproduct firm) Decoy Inc. makes small pressed resin roosters and hens.

For every rooster sold, the company sells two hens. The following informa¬ tion is available about the company’s selling prices and costs:

a. What is the average contribution margin ratio?

b. Calculate the monthly break-even point if fixed costs are incurred evenly throughout the year. At BEP, indicate how many units of each product will be sold.

c. If the company wants to earn $48,000 pre-tax profit monthly, how many units of each product must it sell?

d. Company management has specified $27,000 as monthly net income, and the company is in a 40 percent tax bracket. However, marketing in¬ formation has indicated that the sales mix has changed to one rooster to five hens. How much total revenue and what number of products must be sold to achieve the company’s profit objective?

e. If the company can reduce variable cost per unit (regardless of product) by $3 by raising monthly fixed costs by $3,000, how will the break-even point change? Should the company make these changes? Use original data.

Transcribed Image Text:

Rooster (1) Hen (2) $6 Selling price Variable cost Annual fixed costs $12 4 $144,000 4