Multiple Products, Break-Even Analysis, Operating Leverage, Segmented Income Statements

Ironjay, Inc., produces two types of weight-training equipment: the Jay-flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the Jay-flex to sporting goods stores for $200. The free weights sell for $75 per set. The projected income statement for the coming year follows:

Sales	$600,000
Less: Variable expenses	390,000
Contribution margin	$210,000
Less: Fixed expenses	157,500
Operating income	$52,500

The owner of Ironjay estimates that 40 percent of the sales revenues will be produced by sales of the Jay-flex, with the remaining 60 percent by free weights. The Jay-flex is also responsible for 40 percent of the variable expenses. Of the fixed expenses, one-third are common to both products, and one-half are directly traceable to the Jay-flex line.

Required:

1. Compute the sales revenue that must be earned for Ironjay to break even. $fill in the blank 1

2. Compute the number of Jay-flex machines and free weight sets that must be sold for Ironjay to break even.

Jay-flex	fill in the blank 2	machines
Free weights	fill in the blank 3	sets

3. Compute the degree of operating leverage for Ironjay. fill in the blank 4

Now, assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume? fill in the blank 5 %

4. Ironjay is considering adding a new productthe Jay-rider. The Jay-rider is a cross between a rowing machine and a stationary bicycle. For the first year, Ironjay estimates that the Jay-rider will cannibalize 600 units of sales from the Jay-flex. Sales of free weight sets will remain unchanged. The Jay-rider will sell for $180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5,700. Compute the number of Jay-flex machines, free weight sets, and Jay-riders that must be sold for Ironjay to break even.

Jay-flex	fill in the blank 6	machines
Free weights	fill in the blank 7	sets
Jay-rider	fill in the blank 8	machines

For the coming year, is the addition of the Jay-rider a good idea? No