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Category > Accounting Posted 19 Aug 2017 My Price 9.00

Basu Company

Problem 4-43 Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income

Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:

 

 

Basic Sled

 

Aerosled

 

Total

 

Sales

$3,000,000

 

$2,400,000

 

$5,400,000

 

Total variable cost

1,000,000

 

1,000,000

 

2,000,000

 

Contribution margin

$2,000,000

 

$1,400,000

 

$3,400,000

 

Direct fixed cost

778,000

 

650,000

 

1,428,000

 

Product margin

$1,222,000

 

$   750,000

 

$1,972,000

 

Common fixed cost

 

 

 

 

198,900

 

Operating income

 

 

 

 

$1,773,100

 

 

 

 

 

 

 

 

The selling prices are $30 for the basic sled and $60 for the aerosled.

 

Required:

1.       Compute the number of units of each product that must be sold for Basu to break even.

2.       Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Repeat Requirement 1.

3.       CONCEPTUAL CONNECTION Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an addi- tional $195,000, and some of the potential purchasers of basic sleds would switch to aero- sleds. In total, sales of aerosleds would increase by 12,000 units, and sales of basic sleds would decrease by 5,000 units. Would Basu be better off with this strategy?

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Maurice Tutor
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Status NEW Posted 19 Aug 2017 01:08 PM My Price 9.00

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