Question
Change in Sales Mix and Contribution Margin Life Sound Company manufactures two models of solar powered noise-canceling headphones: Noise Resistant and Total Silence models. The
Change in Sales Mix and Contribution Margin
Life Sound Company manufactures two models of solar powered noise-canceling headphones: Noise Resistant and Total Silence models. The company is operating at less than full capacity. Market research indicates that 30,700 additional Noise Resistant and 33,500 additional Total Silence headphones could be sold. The income from operations by unit of product is as follows:
Noise Resistant Headphone | Total Silence Headphone | |||
Sales price | $29.60 | $46.20 | ||
Variable cost of goods sold | 16.60 | 25.90 | ||
Manufacturing margin | $13.00 | $20.30 | ||
Variable selling and administrative expenses | 5.90 | 9.20 | ||
Contribution margin | $7.10 | $11.10 | ||
Fixed manufacturing costs | 2.70 | 4.20 | ||
Income from operations | $4.40 | $6.90 |
Prepare an analysis indicating the increase or decrease in total profitability if 30,700 additional Noise Resistant and 33,500 additional Total Silence headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per unit answers to two decimal place.
Life Sound Company | ||
Analysis | ||
Noise Resistant Headphone | Total Silence Headphone | |
Unit volume increase | ||
x Contribution margin per unit | $ | $ |
Increase in profitability | $ | $ |
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