AV 2000 Inc. has developed a laser disc and a compact disc which have become popular among young adults. Last year's cost and operating data for the two audio-visual products are presented below:
______Per Unit_______
LaserCompact
Disc Disc
Selling price..................................... $50 $10
Contribution Margin ratio.................... 60% 20%
______Per Year_______
Sales volume in units......................... 5,000 15,000
Fixed costs...................................... $99,000
Required:
1. Prepare last year's contribution income statement showing both amount and percent columns for each product and for the company as a whole.
2. Compute the break-even point in dollars using the company's weighted average CM ratio.
3. Compute the break-even point in units using the weighted average CM. Specify units for each product.
4. The company has developed a third product, and expects to sell 4,000 units of the new product. It will be sold at $25 each, and the variable cost is $17.5 per unit. A market study indicates that the sales of the first two products would not be affected by the new product. Annual fixed costs will remain unchanged. Prepare a contribution income statement for each product and in total.
5. Refer to (4) above. Compute the new break-even point in units. Specify units for each product.