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:

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. Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an additional $195,000, and some of the potential purchasers of basic sleds would switch to aerosleds.
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?

Transcribed Image Text:

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