Multiple product CVP-working backwards Bodrum Inc. has three product lines. Sen, Ben, and Wiz which are fishing lures for salmon, steelhead trout and '^valleve. These lures are much sought-after because of their fantastic action and have been highly successful in the leisure fishing industry. The demand for these products is so strong that the company has been able to charge premium prices of $4, $3, and $5 per lure for Sen, Ben, and Wiz, respectively. The manufacturing facilities are at capacity with a 5 month backlog of orders. Employees and management seem to be very happy as they share the financial rewards of their outstanding craftsmanship and business expertise equally.

However, a major problem has arisen at company headquarters. A disgruntled employee who was fired sabotaged the firm's computer facilities. The president called a conference of top management and said: "Who is going to solve this problem? We need to recover the lost accounting data." As corporate controller and chief financial officer, you are asked about the kind of systems backups your department had done. Basically, financial transactions are backed up, but manage- rial accounting data are gone. You asked for some more time to reconstruct the sales volumes and other cost data.

The president gave you until tomorrow morning to prepare your report which she will present to the owners. She also said that this report is very important because the owners will study next year's sales and production plans.

You call a meeting of your subordinates and determine the following. Even though each product had a different variable cost, all three products had the same contribution margin per unit. Last year, the company broke even when sales of Sen, Ben and Wiz were 35,000,45,000 and 20,000 units, respectively. Also last year, total fixed costs were $200,000. The income tax rate was 30% and is not expected to change for the near future.

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REQUIRED Computer requirements a. Calculate contribution margin per unit for each product line. b. Determine variable cost per unit for each product. c. If the company plans to achieve income after taxes of $490,000 for next year, determine how many units of each product needs to be sold. You may assume the same sales mix as this year. Also comment on whether the company can achieve its target profit given current conditions. d. If the company was motivated by profits only, which product would you recommend the company emphasize? What qualitative questions need to be answered before major decisions such as product line expansion or contraction are made? e. The original cost and pricing data remain unchanged. Assume, however, the company has a target profit of $630,000 after taxes and the sales mix has changed to: Sen. Ben Wiz 45,000 units 30,000 units 25,000 units 1. Calculate contribution margin per unit for each product line. 2. Calculate weighted average contribution margin for the company. 3. How many units of each product must be sold to reach the company's target net profit?