Question

Rally Quadcopters plans to sell a standard quadcopter (toy drone) for $45 and a deluxe quadcopter for $65. Rally purchases the standard quadcopter for $35 and the deluxe quadcopter for $45. Management expects to sell two deluxe quadcopters for every three standard quadcopters. The company's monthly fixed expenses are $14,700. How many of each type of quadcopter must Rally sell monthly to breakeven?
To earn $10,500?
First identify the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

Answer 1

Answer:

Rally must sell 1,080 units of Standard and 720 units of Deluxe

Explanation:

                                                  Standard       Deluxe        Total

Sales price per unit                      $45                $65

Less: Variable cost                      ($35)              ($45)

Contribution Margin per  unit       $10                $20

Sales Mix units  (A)                        $3                  $2                $5

Contribution margin                      $30                $40             $70

Weighted average Contribution                                              $14    

per unit C= B/A

Appointment of fixed cost between standard and deluxe

Total Fixed cost = 14,700

Break even point = Fixed cost / Weighted average Contribution  per unit

= 14,700 / 14

= 1,050

Apportionment of Break even point sales between Standard and deluxe in sales mix ratio (3:2)

Standard = 1,050 * 3/5 = 630

Deluxe = 1,050 * 2/3 = 420

Unit to be sold to get desired profit = Fixed cost + Desired profit / Weighted average Contribution per unit

= (14,700 + 10,500) / 14

= 1,800

Apportionment of Units to be sold to get desired profit between Standard and Deluxe in sales mix ratio (3:2)

Standard = 1,800 * 3/5 = 1,080

Deluxe = 1,800 * 2/5 = 720

To reach target operating income, Rally must sell 1,080 units of Standard and 720 units of Deluxe