E. Cost-volume-profit analysis

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Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labour; hence, there is no traceable fixed costs. Common fixed costs equal $17 400. Parkers accountant has begun to assess the profitability of the two lines and has gathered the following data for last year:

	Vases	Figurines
Price	$40	$70
Variable costs	$30	$42
Number of units	1 200	400

The tax rate is 28%.

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a. Calculate the weighted average contribution margin. (3 marks)

b. Compute the number of vases and the number of figurines that must be sold for the company to break-even. How much revenue would be received for each product? (5 marks)

c. Calculate how many of each product would need to be sold in order to make an after-tax profit of $7 200. (5 marks)

d. Parker Pottery is considering upgrading its factory to improve the quality of its products. If the upgrade is successful, the projected sales of vases will be 1 400 and figurine sales will increase to 600 units. The upgrade will result in an increase in fixed costs to a total of $18,480. Now how many units of each of the products must it sell in order to break-even? (4 marks