# ABCmanufactures and sells cartyres. It has developed two new models, 'A' and 'Z'.The annual fixed cost is $180,000. From apre-launch

## Question:

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.

**Related Book For**

## Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

ISBN: 978-1337614689

9th edition

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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