Rally Quadcopters plans to sell a standard quadcopter (toy drone) for $45 and a deluxe quadcopter for $65. Rally purchases the standard quadcopter for $25 and the deluxe quadcopter for $40. Management expects to sell two deluxe quadcopters for every three standard quadcopters. The company's monthly fixed expenses are $23,100. How many of each type of quadcopter must Rally sell monthly to breakeven? To earn $13,200?

First identify the formula to compute the sales in units at various levels of operating income using the contribution margin approach. (Abbreviations used: Avg. = average, and CM = contribution margin.)

(

Fixed expenses

+

Operating income

) /

Contribution margin ratio

=

Breakeven sales in units

Next compute the weighted-average contribution margin per unit. First identify the formula labels, then complete the calculations step by step.

Deduct:

Weighted average contribution margin per unit

Standard

Deluxe

Total

How many of each type of quadcopter must Rally sell monthly to breakeven?

Rally must sell

standard quadcopters and

deluxe quadcopters to breakeven.

How many of each type of quadcopter must Rally sell monthly to earn $13,200?

To reach the target operating income, Rally must sell

standard quadcopters and

deluxe quadcopters.