Question 13

1. This question has FIVE parts a, b, c, d and e: ABCmanufactures and sells cartyres. It has developed two new models, A and Z.The annual fixed cost is $180,000. From apre-launch market survey, it expects that sixty percent of the potential customers prefer A while forty percent prefer Z. The following information has been extracted:

   	A	Z
   Selling Price pertyre	$150	$200
   Variable Cost pertyre	$40	$60
   Sales commission per unit	$10	$15

   Required: (a) Calculate the Unitcontribution margin for each model of thetyres. (2 marks) (b) Calculate the weighted average contribution margin, assuming the sales mix as determined from the survey is expected to remain constant (4 marks) (c) Calculate the break-even point in units and in sales dollars (in total and per product) for ABC. Assume a constant sales mix. (4 marks) (d) How manytyresof eachmodel need tobe sold to earn a target net profit of $380,000? Assume a constant sales mix. (4 marks) (e) Identify one key factor that must be assumed to enable CVP analysis to be conducted. (1 mark)