Answer:
Flowers Dogs Sports Total
sales volume 25,000 100,000 50,000
selling price $20 $25 $10
variable cost $10 $20 $6
total fixed costs $500,000
contribution margin $10 $5 $4
weighted contribution margin = [(25,000 x $10) + (100,000 x $5) + (50,000 x $4)] / 175,000 = ($250,000 + $500,000 + $200,000) / 175,000 = $5.428571
break even point in units = $500,000 / $5.428571 = 92,105.26 ≈ 92,106 units
flowers: (25/175) x 92,106 = 13,158 units
dogs: (100/175) x 92,106 = 52,632 units
sports: (50/175) x 92,106 = 26,316 units
total = 92,106 units
break even point in $
flowers: 13,158 units x $20 = $263,160
dogs: 52,632 units x $25 = $1,315,800
sports: 26,316 units x $10 = $263,160
total = $1,842,120
currently total contribution margin is:
flowers: 25,000 units x $10 = $250,000
dogs: 100,000 units x $5 = $500,000
sports: 50,000 units x $4 = $200,000
total = $950,000
operating profit = $950,000 - $500,000 = $450,000
if the change is successful, then total contribution margin would be:
flowers: 100,000 units x $10 = $1,000,000
dogs: 50,000 units x $5 = $250,000
sports: 25,000 units x $4 = $100,000
total = $1,350,000
new operating profit = $1,350,000 - $500,000 = $850,000
So yes, I would recommend promoting the change in product mix to increase the sales of flower mugs in order to increase operating profit.
