Question
Multi-Step Problem: Business Description After taking business classes, Edgardo, an avid dog-lover, decided to start selling unique pet supplies at trade shows.He has two products:
Multi-Step Problem:
Business Description
After taking business classes, Edgardo, an avid dog-lover, decided to start selling unique pet supplies at trade shows.He has two products:
Product 1:"Launch-it"-a tennis ball thrower that will sell for $12.
Product 2:"Treat-time"- an automatictreat dispenser that releases a treat when the dog places his paw on the pedal.The treat dispenser will sell for $32.
Costs:Edgardo has hired an employee to work the trade show booths.The work contract is $1,200 per month plus a commission equal to 10% of revenue. Edgardo will also spend $525 per month on trade-show entry fees.Edgardo is purchasing the products from a supplier in Mexico. Launch-its cost $2.50 each;Treat-times cost $8 each. Shipping and handling on the Launch-its will cost $1.00 each; Shipping and handling on the Treat-times, which are heavier, will cost $5.00 each. The shipping and handling costs will be paid by Edgardo, not the customer.Assume Edgardo expects to sell 180 Launch-its and 90 Treat-times during his first month of operations (October).The sales mix 2" Launch-its" for every 1 "Treat-time" or a 2:1 ratio.
Edgardo's financial goal is to earn an operating income of $7,500 per month.
TASK: You have been hired by Edgardo to build a CVP model that will help him understand the impact of business conditions on his operating income.In this problem, all of the original assumptions will be listed in A).All other calculations in the model will reference the assumptions in A) such that if any assumption changes, the effect will ripple through the entire problem.To accomplish this, you will use FORMULAs, rather than numbers, in every other part in this problem.In other words, the only place you will type numbers is in A).
FORMATTING:
- Round all UNITS to the nearest whole unit.
- Show all MONETARY amounts as dollars and cents.Round to the nearest cent.
- Show all PERCENTAGES as %, not as decimals.
A) Complete the assumptions below based on the data about Edgardo's business. Identify and list all variable costs separately and all fixed costs separately before finding the total unit cost for each type of cost.
Assumptions:
Product #1: Launch-it
sales price per unit #?
Variable costs per unit:
(Name of variable?):#?
(Name of variable?):#?
(Name of variable?):#?
Total variable cost per unit:#?
Sales mix:#?
Monthly Volume:#?
Product #2: Treat-time
sales price per unit #?
Variable costs per unit:
(Name of variable?):#?
(Name of variable?):#?
(Name of variable?):#?
Monthly Volume:#?
Sales mix:#?
Fixed Costs per month:
(Name of variable?):#?
(Name of variable?):#?
Total Fixed Costs per month:#?
Target profit per month:#?
B) Complete the Product Analysis assuming Edgardo only sells either Product #1 (Launch-its) ORProduct #2(Treat -times).
Check figures:B/E Product #1 =236 units;B/E Product #2= 109 units
Product #1: Launch-it
Unit Contribution Margin: $
CM%:
Breakeven point in units:
Breakeven point in sales revenue:
Target profit volume in units:
Target profit volume in sales revenue:
Product #2: Treat-time
Unit Contribution Margin:
CM%:
Breakeven point in units:
Breakeven point in sales revenue:
Target profit volume in units:
Target profit volume in sales revenue:
C) Complete the pro forma CM Income Statement for the month of October.HINT:On product line income statements such as this, the fixed costs are only listed in the total column.Make sure you also show the totals for all other line items.Finally,calculate the overallCM % for the company.
Check figure:Operating income = $1011CM % =54%
Jake's Pet Supplies
Pro Forma Contribution Margin Income Statement
Product #1 Product #2 Total
(name) #? #? #?
(name) #? #? #?
Contribution margin #? #? #?
(name) #? #? #?
Operating Income #?
CM% #?
D) Calculate the CM per composite unit
Check figure:CM per composite unit = $30.40
Calculation of Weighted average CM per unit
Product #1 Product #2 Total
(name) #? #?
(name) #? #?
CM per unit #? #?
X Sales Mix #? #?
CM per composite unit #? #? #?
E) Use the CM per composite unit to calculate the TOTAL number of composite units needed to breakeven. THEN, calculate thenumberof EACH type of product needed to breakeven.Finally,calculate the sales revenueassociated with this volume for EACH product, and then add those to get the sales revenue at breakeven in total.
Check figures:B/E Product#1 = 113;B/E Product #2= 57
Multiproduction Breakeven Point: Product #1 Product #2 Composite Unit
-In units #? #? #?
Sales Revenue at Breakeven #? #? #?
F) Use the CM per composite unit to calculate the total number of units needed to achieve Edgardo's target profit.THEN, calculate thenumberof EACH type of product needed to achieve the target profit.Finally,calculate sales revenueassociated with this volume for EACH product, and then add those to get the sales revenue in total.
Check figures:B/E Product#1 =607;B/E Product #2= 303
Multiproduction Target profit point: Product #1 Product #2 Composite Unit
-In units #? #? #?
Sales Revenue at Target profit #? #? #?
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