Reference no: EM132013640

Problem - Multi-product CVP

Fidelity Multimedia sells audio and video equipment and car stereo products. After performing a study of fixed and variable costs in the prior year, the company prepared a product-line statement as follows:

Fidelity Multimedia Profitability Analysis For the Year Ended December 31, 2014 Audio Video Car Total Sales $3,250,000 $1,950,000 $1,300,000 $6,500,000 Less variable costs: Cost of merchandise 1,920,000 1,374,000 617,000 3,911,000 Salary, part-time staff 192,500 108,000 59,000 359,500 Total variable costs 2,112,500 1,482,000 676,000 4,270,500 Contribution margin 1,137,500 468,000 624,000 2,229,500 Less direct fixed costs: Salary, full-time staff 325,000 240,000 220,000 785,000 Total $812,000 $228,000 $404,000 $1,444,500 Less common fixed costs: Advertising 115,000 Utilities 25,000 Other administrative costs 570,000 Total common fixed costs: 710,000 Profit $734,500

Required -

a. Calculate the contribution margin ratios for the audio, video, and car product lines.

b. What would be the effect on profit of a $125,000 increase in sales of audio equipment compared with $125,000 increase in sales of video equipment or a $125,000 increase in sales of car equipment? Based on this limited information, which product line would you recommend expanding?

c. Calculate the break-even level of sales dollars for the company as a whole. (Round to the nearest dollar.)

d. Calculate sales needed to achieve a profit of $1,800,000, assuming the current mix. (Round to the nearest dollar.)

e. Determine the sales of audio, video, and car products in the total sales amount calculated for part d. (Round to the nearest dollar.)