Problem 20.8A

Problem 20.8A Sample Worked Prolem: Problem 20.88 Ivy Blooms Part A Contribution margin ratios of product lines: Wreaths Leis Part B (1) Average contribution margin ratio: From weaths From leis Average contribution margin ratio (2) Monthly operating income: Total sales Average contribution margin ratio Total contribution margin Less: Total fixed costs Operating income |Monthly break-even sales volume (in dollars): Total fixed costs Average contribution margin ratio Break-even sales volume Part C Assuming new sales mix (1) Average contribution margin ratio: From wreaths From leis Average contribution margin ratio (2) Monthly operating income: Total sales Average contribution margin ratio Total contribution margin Less: Total fixed costs Operating income (3) Monthly break-even sales volume (in dollars): Total fixed costs Average contribution margin ratio Break-even sales volume Part D ExplanationPROBLEM 20.8A CVP with Multiple Products Ivy Blooms sells wreaths and leis. The following is selected per-unit information for these two products. Wreaths Leis Sales price . $40 $8 Variable costs and expenses 28 Contribution margin . . $12 $6 Fixed costs and expenses amount to $97,500 per month. The company generates total sales of $300,000 per month, of which 80 percent result from the sale of wreaths and the other 20 percent from the sale of leis. Instructions a. Compute separately the contribution margin ratio for each line of products. b. Assuming the current sales mix, compute 1. Average contribution margin ratio of total monthly sales. 2. Monthly operating income. 3. The monthly break-even sales volume (stated in dollars). c. Assume that through aggressive marketing the company is able to shift its sales mix toward more sales of leis. Total sales remain $300,000 per month, but now 40 percent of this revenue stems from sales of leis. Using this new sales mix, compute 1. Average contribution margin ratio of total monthly sales. 2. Monthly operating income. 3. The monthly break-even sales volume (stated in dollars). d. Explain why the company's financial picture changes so significantly with the new sales mix