Question 2

Rainbow Bridge began selling memorial urns for dogs and cats in 2018. Due to the great success of this venture, Rainbow decided to start selling memorial statues in 2019 and in 2020 commenced memorial photo frames.

Each line uses the same equipment and labour so there are no traceable fixed costs.

Each Urn sells for $50, each statue sells for $80 and each photo frame sells for $30. The variable cost for urn is $30, the statue is $48 and the photo frame is $15. Fixed costs are $130,000.

Rainbow's accounting system for the year ended 2021 showed sales of 12,000 units for urns, 6,000 units for statues and 24,000 units for photo frames.

Required:

1. What is the sales mix of Urns, Statues and Photo Frames?

[2 marks]

1. What is the break even quantity for each product?

[3 marks]

1. Rainbow Bridge is considering upgrading its machinery to improve quality which in turn will improve sales. The upgrade will add $10,200 to fixed costs, however sales of Urns will increase by 6000 units, statues by 3,000 units and photo frames by 3,000 units. What is the new break even point in units for each of the products?

[5 marks]

1. How much sales revenue must Rainbow Bridge earn to break even assuming the same facts as in requirement c?

[3 marks]

1. Calculate Rainbow Bridge's margin of safety (in sales dollars) assuming the same facts as in requirement c and that it sells 18,000 urns, 9,000 statues and 27,000 photo frames.

[4 marks]

1. What is the Contribution Margin Ratio assuming the same facts as in requirement c?

[2 marks]

1. What is the formula to calculate the degree of operating leverage?