HomeTeam Sports sells hats and shirts licensed by the NFL and the NBA. The following is selected per-unit information for these two product lines:

Fixed costs and expenses amount to $684,000 per month.
HomeTeam has total sales of $1.5 million per month, of which 60 percent result from the sale of shirts and the other 40 percent from the sale of hats.

Instructions
a. Compute separately the contribution margin ratio for each line of products.
b. Assuming the current sales mix, compute:
1. Average contribution margin ratio of total monthly sales.
2. Monthly operating income.
3. The monthly break-even sales volume (stated in dollars).
c. Assume that because of consumer trends, the company’s sales mix shifts to a higher demand for hats. Total sales remain $1.5 million per month, but now 60 percent of this revenue stems from sales of hats. Using this new sales mix, compute:
1. Average contribution margin ratio of total monthly sales.
2. Monthly operating income.
3. The monthly break-even sales volume (stated in dollars).
d. Explain why the company’s financial picture changes so significantly with the new salesmix.

Transcribed Image Text:

Hats Shirts Variable costs and expenses Contribution margin 14 7 $6 $21