Question

What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix would be 43 percent chicken and 57 percent fish at the break-even point, compute the break-even volume using weighted-average contribution margin. c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break-even volume?

Answer 1

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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