Question:
Pete's Pet Products is a sole proprietorship owned by Pete Thompson. The store provides a full-line of pet products, including food, grooming materials, toys, leashes, etc. The company also sells hand-made pet houses, including dog houses, bird cages, and cat castles. Each of the pet houses is being evaluated in terms of cost-volume-profit. See the relevant information below:
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Dog house
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Bird cage
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Cat castle
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Sales Price
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$140
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$95
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$160
|
|
Variable cost
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$65
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$34
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$56
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Fixed monthly cost
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30%
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25%
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45%
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When Pete uses a distributor to sell additional pet houses, he has to pay a sales commission of 8% of the sales price. On average, he sells 60% of each pet house through distributors. The fixed costs (shown above) are based on estimated design time for each product. Pete's store averages $32,000 of fixed costs per month.
1. Calculate the contribution margin for each pet house. Ignore the sales commission for this computation.
2. Calculate the monthly break-even units for each pet house. Ignore the sales commission for this computation.