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. 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?

Answer 1

Answer:

Break-even point in dollars=  $45,467,000

Explanation:

Giving the following information:

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.

Weighted average contribution margin ratio= (0.80*0.20) + (0.20*0.70)= 0.3

Break-even point in dollars= fixed costs/ contribution margin ratio

Break-even point in dollars= 13,640,100/0.30= $45,467,000