Problem A - Assume the Mountain Furniture Company sells two kinds of picnic tables, pine and redwood. At a 2:1 unit sales mix in which Mountain sells two pine tables for every redwood table, the following revenue and cost information is available.
|
Pine Table
|
Redwood Table
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|
Unit selling price
|
$400
|
$1,200
|
|
Unit variable costs
|
$250
|
$ 600
|
|
Unit contribution margin
|
$150
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$ 600
|
Fixed costs per month: $18,000
Assuming a 2:1 sales mix, calculate Mountain Furniture's current monthly average unit contribution margin, break-even sales volume, and number of units of Pine and Redwood tables at break-even point.
Problem B - The Farm Fresh Food Market is a merchandiser of organic food items. The company is considering the possibility of selling pomegranates that would sell for $0.59 each. Pomegranates can be acquired in unlimited quantities for $0.43 each. There are no additional variable costs associated with acquiring and selling pomegranates since labor is on a salaried basis. However, in order to acquire pomegranates at this price, Farm Fresh must pay $4,000 per year for membership in an International co-op.
Required:
a. How many pomegranates would Farm Fresh need to sell annually to justify joining the co-op (break-even)?
b. What would be the total revenue at the breakeven point?
c. How many pomegranates would the company need to sell to earn a profit of $6,000?
d. If pomegranates cost were $0.51 instead of $0.43, how many pomegranates would need to be sold in order to earn the same $6,000?
Problem C - During the most recent fiscal period, Karson Company had sales of $80,000. Variable costs are 40% of sales and fixed costs amounted to $16,000 for the year. Calculate the following:
a. Contribution margin ratio
b. Operating leverage
c. Breakeven sales in dollars
d. Operating profit if sales increase by 15% next year.