Problem - Change in Sales Mix and Contribution Margin

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Problem - Change in Sales Mix and Contribution Margin

Life Sound Company manufactures two models of noise-canceling headphones: Noise Resistant and Total Silence models. The company is operating at less than full capacity. Market research indicates that 29,750 additional Noise Resistant and 33,000 additional Total Silence headphones could be sold. The income from operations by unit of product is as follows:

 

Noise Resistant Headphone

Total Silence Headphone

Sales price  

Variable cost of goods sold  

Manufacturing margin  

Variable selling and administrative expenses  

Contribution margin  

Fixed manufacturing costs  

Income from operations  

$50.00

28.00

$22.00

10.00

$12.00

5.00

$ 7.00

$70.00

39.20

$30.80

14.00

$16.80

7.00

$ 9.80

Required - Prepare an analysis indicating the increase or decrease in total profitability if 29,750 additional Noise Resistant and 33,000 additional Total Silence headphones are produced and sold, assuming that there is sufficient capacity for the additional production.

Reference no: EM132685857

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