A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three-
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Answer:
a. Anticipated level of profit.
Profit = Contribution margin of Chicken + Contribution Margin of Fish - Fixed costs
Contribution margin of Chicken
= (Selling - Variable costs) * Units sold
= ( 3.9 - 1.95) * 209,000
= $407,550
Contribution Margin of Fish
= (Selling - Variable costs) * Units sold
= ( 5 - 2.5 ) * 305,000
= $762,500
Profit = 407,550 + 762,500 - 111,000
Profit = $1,059,050
b. Break-even using weighted-average contribution margin.
Breakeven point = Fixed Cost/ Weighted Contribution margin
Weighted contribution margin
= (Proportion of chicken * Contribution margin of chicken) + (Proportion of fish * Contribution margin of fish)
= ( 43% * (3.9-1.95)) + ( 57% * ( 5 - 2.5 ))
= $2.2635
Breakeven point = 111,000 / 2.2635
= 49,039 units
c. Sales mix changes to four chicken tacos for each fish taco.
That means 0.8 chickens and 0.2 fish.
= (Proportion of chicken * Contribution margin of chicken) + (Proportion of fish * Contribution margin of fish)
= ( 80% * (3.9-1.95)) + ( 20% * ( 5 - 2.5 ))
= $2.06
Breakeven point = 111,000 / 2.06
= 53,883 units
Chicken = 80% * 53,883
= 43,106 units
Fish = 53,883 - 43,106
= 10,777 units
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