QUESTION 3

Fitness First Co manufactures three types of fitness equipment: treadmills (T), cross trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the next year are as follows:

T C R

Selling price RM 1,600 RM 1,800 RM 1,400

Units 420 400 380

The standard cost card for each product is shown below.

T C R

RM RM RM

Material 430 500 360

Labor 220 240 190

Variable overheads 110 120 95

Labor costs are 60% fixed and 40% variable. General fixed overheads excluding any fixed labor costs are expected to be $55,000 for the next year.

REQUIRED:

1. Calculate the weighted average contribution to sales ratio for Fitness First Co using the formula of Total Contribution/Total Sales Revenue for the three products.
2. Calculate the margin of safety in RM revenue for Fitness First Co.
3. Using a graph paper and assuming that the products are sold in a CONSTANT MIX, draw a multi-product break even chart for Fitness First Co. Label fully both axes, any lines drawn on the graph and the break even point.
4. Explain what would happen to the break even point if the products were sold in order of the most profitable products first.