Raquel Swimwear sells lines of adult and youth swimming suits. The following is per-unit information for these two product lines.

Fixed costs and expenses amount to $117,000 per month. The company currently has total sales of $500,000 per month, of which 40 percent result from the sale of adult swimwear and the other 60 percent from the sale of youth swimwear.

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 much higher demand for youth swimwear. Total sales are expected to remain $500,000 per month, but 80 percent of this revenue is likely to stem from sales of the youth line. 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 sales mix.

Transcribed Image Text:

Sales price Variable costs and expenses Contribution margin ..... Adult $50 20 $30 Youth $24 18 $6