Question 5 (11 marks)

Smarty Inc. Ltd produces two different products with the following monthly data:

	P1	P2	Total
Selling price per unit	$100	$12
Variable cost per unit	$ 60	$ 3
Expected unit sales	21,000	14,000	35,000
Sales mix	60 %	40 %	100 %
Fixed costs			$750,000

Assume the sales mix remains the same at all levels of sales.

Required:

a) Calculate the weighted average contribution margin per unit. (1 mark)

b) How many units in total must be sold to break even? (1 mark)

c) How many units of each product must be sold to break even? (1 mark)

d) How many units of each product must be sold to earn a monthly profit of $100,000? (3 marks)

e) Prepare a contribution margin income statement for the month. (3 marks)

f) If the sales mix shifts more toward the P1 product than the P2 product, would the break-even point in units increase or decrease? Explain. (Detail calculations are not necessary but may be helpful in confirming your answer.) (2 marks)