Capstone, Inc. (Chapter 7)

Part 1 Capstone, Inc. has a sales mix of sprinklers, valves, and controllers as follows.

Annual expected sales:

Sale of sprinklers 475,000 units at $27.50

Sale of valves 1,525,000 units at $12.50

Sale of controllers 50,000 units at $45.00

Variable manufacturing cost per unit:

Sprinklers $14.96

Valves $ 8.95

Controllers $25.75

Fixed manufacturing overhead cost (total) $850,000

Variable selling and administrative expenses per unit:

Sprinklers $1.35

Valves $0.55

Controllers $3.40

Fixed selling and administrative expenses (total) $1,500,000.

Instructions

1. Determine the sales mix based on unit sales for each product.
2. Using the annual expected sales for these products, determine the weighted-average unit contribution margin for these three products. (Round to two decimal places.)
3. Assuming the sales mix remains the same, what is the break-even point in units for these products?

Part 2 Capstone, Inc. packages some of its products into sets for home installations. One set (small) sells for $87.50 with variable costs of production for the set at $55. Another set (large) sells for $155 with variable costs of $110. The parts for the $87.50 set take 8 machine hours to produce. The parts for the $155 set take 15 machine hours to produce.

Instructions

Given the information above, and assuming all of the package sets produced can be sold each month, illustrate the best use of machine hours.

Part 3 The section of Capstone, Inc. that produces controllers for the company provided the following information.

Sales for month of February: 4,500

Variable manufacturing cost per unit: $9.50

Sales price per unit: $47.50

Fixed manufacturing overhead cost (per month for controllers): $85,000

Variable selling and administrative expenses per unit: $4.00

Fixed selling and administrative expenses (per month for controllers): $14,000.

Instructions

1. Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Capstone, Inc. on this product.
2. What does this information suggest if Capstone, Inc. cost structure is the same for the company as a whole?