Question
Lartey Co manufactures three types of fitness equipment: treadmills (T), cross trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the
Lartey Co manufactures three types of fitness equipment: treadmills (T), cross trainers (C) and rowing machines (R).
The budgeted sales prices and volumes for the next year are as follows:
T C R
Selling price 1,600 1,800 1,400
Units 420 400 380
The standard cost card for each product is shown below
T C R
Material 430 500 360
Labour 220 240 190
Variable overheads 110 120 95
Labour costs are 60% fixed and 40% variable. General fixed overheads excluding any fixed labour costs are expected to be 55,000 for the next year.
Required:
(a) Calculate the weighted average contribution to sales ratio for Lartey Co. (4 marks)
(b) Calculate the margin of safety in revenue for Lartey Co.
(c) Using the graph paper provided and assuming that the products are sold in a CONSTANT MIX, draw a multi-product breakeven chart for Lartey Co. Label fully both axes, any lines drawn on the graph and the breakeven point.
(d) Explain what would happen to the breakeven point if the products were sold in order of the most profitable products first.
Note: You are NOT required to demonstrate this on the graph drawn in part (c).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started