Music Company produces two models, P Diddy and Eminem. Information regarding the products is summarized for the month of April in the following table:
|
|
P Diddy |
Eminem |
Total |
|
Number of units |
600 |
400 |
1,000 |
|
Sales revenue |
$24,000 |
$12,000 |
$36,000 |
|
Fixed costs |
6,000 |
5,400 |
11,400 |
|
Variable costs |
12,600 |
3,600 |
16,200 |
|
Operating Income |
$ 5,400 |
$ 3,000 |
$ 8,400 |
|
Profit per unit |
$9.00 |
$7.50 |
|
A. How much is the weighted average contribution margin ratio based on sales dolalrs?
B. What level of sales does Music need to earn a before tax profit of $10,000 assuming the current mix?
C. If you were a salesman for Music, which product would you ‘push’ to customers to achieve the highest profit for your company if customers will each spend $2,000 and are indifferent as to which product? Show calculations and briefly justify your answer.
Problem 8 Smith Company produces desk lamps. The budget information for June indicated that production and sales of 800 units at $25 per unit would generate variable costs of $15 per unit and fixed costs of $7.50 per unit.
A. How much is the contribution margin of each desk lamp?
B. How many lamps must be sold to generate profit of $5,000?
C. How much sales dollars must Smith generate to break even?
D. Suppose Smith operates at $5,000 profit during June. By how many units can sales decline before Smith would incur a net loss?
E. What is the accounting name of the concept you calculated in part D?
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