Reference no: EM132818188

Problem - Active Company produces skateboards and rollerblades and sells the skateboard for $400 each and rollerblades for $200 each. The variable cost of the skateboard is $200 per unit and variable cost for rollerblades is $100 per unit. Total fixed cost for the year was $950,000. Active Company's expected sales mix is one skateboard to three roller blades.

Required -

1. What is the contribution margin per unit and the contribution margin ratio for skateboards and rollerblades?

2. If Active Company sells 5,000 skateboards and 15,000 rollerblades, what is the operating income? (show your calculations using a contribution margin income statement).

3. How many skateboards and rollerblades must be sold for Active Company to break-even?

4. Assume that Active Company can reorganize its factory to produce rollerblades only. If this is done, total fixed costs will decrease by $100,000, and 25,000 rollerblades can be produced and sold. Explain if this is a good idea and whether Active Company should go ahead with the rearrangement to its factory to produce rollerblades only. Show calculations using a contribution margin income statement to justify your recommendation.