Question
The JanobiJanobi Company has three product lines of beer mugsmugslong dashA, B, and Clong dashwith contribution margins of $ 5$5, $ 3$3, and $ 2$2,
The
JanobiJanobi
Company has three product lines of beer
mugsmugslong dashA,
B, and
Clong dashwith
contribution margins of
$ 5$5,
$ 3$3,
and
$ 2$2,
respectively. The president foresees sales of
238 comma 000238,000
units in the coming period, consisting of
34 comma 00034,000
units of A,
136 comma 000136,000
units of B, and
68 comma 00068,000
units of C. The company's fixed costs for the period are
$ 199 comma 500$199,500.
Read the requirements
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.
Requirement 1. What is the company's breakeven point in units, assuming that the given sales mix is maintained? Begin by determining the sales mix.
For every 1 unit of Product A, |
| units of Product B, and |
| units of Product C are sold. |
Determine the formula used to calculate the breakeven point of the bundle when there is more than one product sold. Then, enter the amounts in the formula to calculate the breakeven point in bundles.
|
| / |
| = | Breakeven point in bundles |
|
|
| / |
| = |
|
|
The breakeven point is |
| units of Product A, |
| units of Product B, and | |
| units of Product C. |
Requirement 2. If the sales mix is maintained, what is the total contribution margin when
238 comma 000238,000
units are sold? What is the operating income?
| Product A | Product B | Product C | Total |
Units sold |
|
|
|
|
Contribution margin |
|
|
|
|
Fixed costs |
|
|
| |
Operating income |
|
|
|
|
Requirement 3. What would operating income be if the company sold
34 comma 00034,000
units of A,
68 comma 00068,000
units of B, and
136 comma 000136,000
units of C? What is the new breakeven point in units if these relationships persist in the nextperiod?
Begin by calculating the operating income.
| Product A | Product B | Product C | Total |
Units sold |
|
|
|
|
Contribution margin |
|
|
|
|
Fixed costs |
|
|
| |
Operating income |
|
|
|
|
What is the new breakeven point in units if these relationships persist in the next period?
The breakeven point of the bundle is |
| bundles. |
The breakeven point is |
| units of Product A, |
| units of Product B, and | |
| units of Product C. |
Requirement 4. Comparing the breakeven points in requirements 1 and 3, is it always better for a company to choose the sales mix that yields the lower breakeven point? Explain. (Select the correct choice with the best explanation.)
A.
Yes, it is always better to choose the sales mix with the lowest breakeven point because the lowest breakeven point will always result in a higher contribution margin.
B.
Yes, it is always better to choose the sales mix with the lowest breakeven point because the lowest breakeven point will always result in a higher operating income.
C.
No, it is not always better to choose the sales mix with the lowest breakeven point because this calculation ignores the demand for the various products. The company should look to and sell as much of each of the 3 products as it can to maximize operating income even if this means that this sales mix results in a higher breakeven point.
D.
No, it is not always better to choose the sales mix with the lowest breakeven point because this calculation ignores the fixed costs. The company should consider the fixed costs in order to maximize operating income.
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