Question

Refer back to the original information. Blake has decided to add stadium blankets to his product line. He has found a supplier who will provide the blankets for $32, and he plans to sell them for $60. All other variable costs currently incurred for selling mascots will be incurred for selling blankets at the same rate. Additional fixed costs of $125 per month will be incurred. He believes he can sell one blanket for every four stuffed mascots. How many blankets and stuffed mascots will Blake need to sell each month in order to break even? Round all amounts to two decimal places.

Answer 1

Answer:

Blake must sell 80 blankets  and 320 stuffed mascots in order to break even.

Explanation:

The question is incomplete, the accounts are missing, so I looked for them:

February March

Sales revenue $25,000 $37,500

Cost of goods sold 10,000 15,000

Gross profit 15,000 22,500

Rent expense 1,500 1,500

Wages expense 3,500 5,000

Shipping expense 1,100 1,650

Utilities expense 750 750

Advertising expense 1,000 1,400

Insurance expense 585 585

Operating income $6,565 $11,615

The income statement using the contribution margin format would be as follows:

Income Statement              Year 1                  Year 2

Sales revenue                   $25,000            $37,500

Variable costs:

• Cost of goods sold   $10,000            $15,000
• Wages expense*        $3,000             $4,500
• Shipping expense       $1,100              $1,650
• Advertising expense*   $800              $1,200

Contribution margin           $10,100            $15,150

Period costs:

• Wages expense*           $500               $500
• Advertising expense*   $200               $200
• Rent expense              $1,500            $1,500
• Insurance expense       $585               $585
• Utilities expense           $750               $750

Net income                         $6,565             $11,615

*high low cost method for wages expense and advertisement expense:

variable wages expense = ($5,000 - $3,500) / (3,000 - 2,000) = $1.50 per unit

fixed wages expense = $5,000 - (3,000 x $1.50) = $500

variable advertising expense = ($1,400 - $1,000) / (3,000 - 2,000) = $0.40 per unit

fixed advertising expense = $1,400 - (3,000 x $0.40) = $200

contribution margin per stuffed mascot = $15,150 / 3,000 = $5.05 per unit

contribution margin per blanket = $60 - ($32 + $1.50 + $0.55 + $0.40) = $25.55

sales ratio 1 blanket : 4 mascots

weighted contribution margin = ($25.55 x 20%) + ($5.05 x 80%) = $5.11 + $4.04 = $9.15

total fixed costs = $3,535 + $125 = $3,660

break even number in units = $3,660 / $9.15 = 400 units

Blake must sell 80 blankets  and 320 stuffed mascots in order to break even.