Question
Carpets Corporation Jasmine encountered her boss Aladdin at the espresso machine in the lounge. Aladdin is the VP of marketing at Carpets Limited. Jasmine was
Carpets Corporation
Jasmine encountered her boss Aladdin at the espresso machine in the lounge. Aladdin is the VP of marketing at Carpets Limited. Jasmine was puzzled by some calculations she had been doing so she asked:
Jasmine: Aladdin, Im not sure how to go about answering the questions that came up at the meeting with the President yesterday.
Aladdin: Whats the problem?
Jasmine: The President wanted to know the break-even for each of the companys products, but I am having trouble figuring them out.
Aladdin: Im sure you can handle it, Jasmine. And by the way, I need your analysis emailed and on my computer the morning of March 13 at 8:40 sharp so I can look at it before the follow-up meeting at 9:55.
Carpets make three flying carpets in its manufacturing facility in Jafar. Data on these three products are as follows:
French Meditrainian Welsh
Normal annual selling volume 100,000 200,000 300,000
Unit selling price $2.00 $1.40 $0.80
Variable cost per unit $1.20 $0.80 $0.50
Total fixed costs for the entire company are $282,000 per year.
All three products are sold in highly competitive markets around the globe, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has no inventories of work-in process or finished goods due to an extremely efficient just-in-time system.
REQUIRED
- What is the companys overall break-even in total sales dollars?
- Of the total fixed costs of $282,000, $18,000 could be avoided if the French Carpet was dropped, $96,000 if the Meditrainian Carpet was dropped and $60,000 if the Welsh Carpet was dropped. The remaining fixed costs are common and are unavoidable unless the company went out of business.
- What is the break-even quantity and dollars of each product?
- If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result.
Complete the following independently from the above.
- In the bedroom furniture division budgeted sales by division and in total for the following month are as follows:
French Meditrainian Welsh Total
Percent of total sales 48% 20% 32% 100%
Sales $240,000 100% $100,000 100% $ 160,000 100% $500,000 100%
Variable expenses $72,000 30% $80,000 80% $ 88,000 55% $240,000 48%
Contribution Margin $168,000 70% $20,000 20% $ 72,000 45% $260,000 52%
Fixed expenses $223,600
Operating income $36,400
Breakeven point in sales dollars = Fixed expenses = $223,600 = $430,000
CM ratio 0.52
As shown by this data, operating income is budgeted at $36,400 for the month and breakeven sales are $430,000.
Assume actual sales for the month total $500,000 as planned. Actual sales by divisions are $French - $160,000; Meditrainian - $200,000 and Welsh - $140,000.
Prepare a contribution income statement for actual sales based on the above data and explain why the operating income is not as budget.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started