B L M A C D E F G H J K 1 Problem 7-54 Name: 1 Selling No of IN Sales mix Sales Price Units Basic Aero Total Variable Contribution Sales Contribution Product Price Cost S Margin X Mix E Margin 10 Basic sleds 11 Aerosleds 12 Package 13 14 Fixed Cost Total CM = Break-Even Packages 15 Break-Even Packages 16 17 Units X Packages = Break-Even of Component 18 Break-Even Basic Sleds 19 Break-Even Aerosleds 20 21 22 2 . 23 New mix: Total 24 Variable Contribution Sales Contribution 25 Product Price Cost Margin X Mix Margin 26 Basic sleds 27 Aerosleds 28 Package 29 30 Fixed Cost Total CM = Break-Even Packages 31 Break-Even Packages 32 33 Units X Packages = Break-Even of Component 34 Break-Even Basic Sleds 35 Break-Even Aerosleds 36Basu 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: EXCEL Basic Sled Acrosled Total Sales $3,000,000 $2,400,000 $5,400,000 Total variable cost 1,000,000 1,000,000 2,000,000 Contribution margin $2,000,000 $1,400,000 $3,400.000 Direct fixed cost 778,000 650,000 1,428,000 Product margin $1.222,000 $ 750,000 $1,972.000 Common fixed cost 198.900 Operating income $1.773.100 The selling prices are $30 for the basic sled and $60 for the aerosled. (Round break-even packages and break-even units to the nearest whole unit.) 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. ANSWER ! 3. CONCEPTUAL CONNECTION 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?3. Increase in contribution margin for aerosleds Decrease in contribution margin for basic sleds Increase in total contribution margin Less: Additional fixed cost Increase in income