Question

Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,640,100. (a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 2 decimal places e.g. 0.22 and round final answers to 0 decimal places, e.g. 2,510.)

Answer 1

Answer:

The company’s break-even point in total sales dollars is $45,467,000

Sales of standardized boxes = $36,373,600

Sales of non-standardized boxes = $9,093,400

Explanation:

Sales:

Sale standardized delivery boxes = 80% = 0.80

Sale non- standardized delivery boxes = 20% = 0.20

Let S = Sales

Total Sales = 0.8S + 0.2S

Contribution:

Standardized =20% = 0.20

non- standardized = 70% = 0.70

Total Contribution  = (0.8 x 0.2)S + (0.2 x 0.7)S = 0.16S + 0.14S

Sales Needed = $13,640,100

At break-even we know that:

Total Contribution = Fixed cost

0.16S + 0.14S = $13,640,100

S(0.16 + 0.14) = $13,640,100

S0.30 = $13,640,100

S = $13,640,100 / 0.30

S= $45,467,000

Sales of standardized boxes = $45,467,000 x 0.80 = $36,373,600

Sales of non-standardized boxes = $45,467,000 x 0.20 = $9,093,400