Question 5

Oriental Furnitures makes three types of quality wooden furniture. Information for these three products are shown below:

	A1	A2	A3	Total
Selling price per unit	$200	$500	$1 000
Variable cost per unit	$60	$250	$600
Expected unit sales (annual)	15,000	7,000	2,000	24,000
Sales mix	60 percent	30 percent	10 percent	100 percent

Total annual fixed costs are $4,000,000. Assume the sales mix remains the same at all levels of sales.

Required: SHOW YOUR WORKINGS FOR ALL SECTIONS

1. Calculate the weighted average unit contribution margin, assuming a constant sales mix.
2. How many units of each furniture type must be sold to break even?
3. Calculate in sales units the margin of safety for Oriental Furnitures, assuming projected sales are 24 000 units?
4. Suggest two ways Oriental Furnitures can improve its margin of safety?