Compute the number of units of each product

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Reference no: EM131197457

Problem : Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income

Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:

	Basic Sled	Aerosled	Total
Sales	$3,000,000	$2,400,000	$5,400,000
Total variable cost	1,000,000	1,000,000	2,000,000
Contribution margin	$2,000,000	$1,400,000	$3,400,000
Direct fixed cost	778,000	650,000	1,428,000
Product margin	$1,222,000	$ 750,000	$1,972,000
Common fixed cost			198,900
Operating income			$1,773,100

The selling prices are $30 for the basic sled and $60 for the aerosled.

Required:

1. Compute the number of units of each product that must be sold for Basu to break even.

2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Repeat Requirement 1.

3. CONCEPTUAL CONNECTION Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an addi- tional $195,000, and some of the potential purchasers of basic sleds would switch to aero- sleds. In total, sales of aerosleds would increase by 12,000 units, and sales of basic sleds would decrease by 5,000 units. Would Basu be better off with this strategy?

Reference no: EM131197457

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