Information regarding the products is summarized (answer attached)

Music Company produces two models, P Diddy and Eminem. Information regarding the products is summarized for the month of April in the following table:

 

P Diddy

Eminem

Total

Number of units

600

400

1,000

Sales revenue

$24,000

$12,000

$36,000

Fixed costs

6,000

5,400

11,400

Variable costs

 12,600

  3,600

16,200

Operating Income

$ 5,400

$ 3,000

$ 8,400

Profit per unit

$9.00

$7.50

 

A.   How much is the weighted average contribution margin ratio based on sales dolalrs?

 

B.   What level of sales does Music need to earn a before tax profit of $10,000 assuming the current mix?

C.   If you were a salesman for Music, which product would you ‘push’ to customers to achieve the highest profit for your company if customers will each spend $2,000 and are indifferent as to which product? Show calculations and briefly justify your answer.

 

 

 

 

 

Problem 8   Smith Company produces desk lamps. The budget information for June indicated that production and sales of 800 units at $25 per unit would generate variable costs of $15 per unit and fixed costs of $7.50 per unit.        

A.  How much is the contribution margin of each desk lamp? 

 

B.   How many lamps must be sold to generate profit of $5,000?

C.   How much sales dollars must Smith generate to break even?

     

D.   Suppose Smith operates at $5,000 profit during June. By how many units can sales decline before Smith would incur a net loss? 

     

E.   What is the accounting name of the concept you calculated in part D?

 

 

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