Problem 2:

Thomas family also runs a gourmet food store that sells two main products: Premium Caviar and Goose Foie Gras. They import the Premium Caviar from Russia, and purchase Goose Foie Gras from Upstate New York. The two products are sold in boxes. Thomas gathers the following information:

Premium Caviar Goose Foie Gras Totals

Units 4,000 12,000 16,000

Revenue $100,000 $180,000 $280,000

Variable costs 56,000 105,000 161,000

Fixed costs 20,000 40,000 60,000

Profit $ 24,000 $ 35,000 $ 59,000

Selling price per unit $25.00 $15.00

Contribution margin per unit $11.00 $6.25

Profit margin per unit $6.00 $2.92

When Thomas took accounting courses at college, he knows how to do cost-volume-profit analysis pretty well. However, he just remembers how to do the analysis for those companies with only one product. Therefore, he needs your help to calculate the following:

1. What is the business weighted-average contribution margin per unit? (show your computation)

2. Calculate the business break-even point in units assuming the current sales mix. (show your computation)

3. What will be the number of Premium Caviar and Goose Foie Gras boxes at the break-even level of sales? (show your computation)

4. What is the business weighted average contribution margin ratio? (show your computation)

5. What level of sales (in dollars) will be needed to earn a profit of $64,950 assuming the current sales mix? (show your computation)

f. What will be the sales (in dollars) of Premium Caviar and Goose Foie Gras boxes for the business total sales calculated in Part e? (show your computation)

Problem 3:

After a few years of successful business, Thomas saw the need to diversify his business to take advantage of the growth potential of new markets. Doing so also reduces the business risk. He set up a new company that sells 3 models of tables: Russian style, Italian style, and Mexican style. His targeted market was in NYC where there is huge demand for those products. Operating results for June are below:

	Russian style	Italian style	Mexican style	Total
Units sold	400	450	350	1,200
Revenue	$36,000	$22,500	$35,000	$93,500
Variable departmental costs	14,000	13,500	17,500	45,000
Avoidable fixed costs	6,000	4,000	5,000	15,000
Unavoidable fixed costs	8,000	9,000	7,000	24,000
Net income	$ 8,000	($ 4,000)	$ 5,500	$ 9,500

a. If Italian style is discontinued, management estimates that sales of Russian style will increase by 20%. In good form, prepare an incremental analysis to determine if Italian style should be discontinued.

b. What qualitative factors should Thomas consider relating question (a)?

c. Should Italian style be discontinued based solely on quantitative aspects? Briefly justify your response.

d. Without creating new income statements, and using your results from your analysis in part A, determine the amount of the companys new net income if Italian style is discontinued. Show your calculations.