ABC manufactures and sells car tyres. It has developed two new models, 'A' and 'Z'. The annual fixed cost is $180,000.  From a pre-launch market survey, it expects that sixty percent of the potential customers prefer 'A' while forty percent prefer ''Z'. The following information has been extracted: 

	A	Z
Selling Price per tyre	$150	$200
Variable Cost per tyre	$40	$60
Sales commission per unit	$10	$15

Required:  
(a) Calculate the Unit contribution margin for each model of the tyres.   
(b) Calculate the weighted average contribution margin, assuming the sales mix as determined from the survey is expected to remain constant   
(c) Calculate the break-even point in units and in sales dollars (in total and per product) for ABC. Assume a constant sales mix. 
(d) How many tyres of each model need to be sold to earn a target net profit of $380,000? Assume a constant sales mix. 
(e) Identify one key factor that must be assumed to enable CVP analysis to be conducted. 

Answer rating: 100% (QA)

a The unit contribution margin for each model of the tyres can be calculated as follows For model A Selling price per tyre 150 Variable cost per tyre 40 Sales commission per unit 10 Unit contribution View the full answer