Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 49

Extensions of the CVP Model—Multiple Products

Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics:

	?AU	?NZ
Selling price per unit	$80	$80
Variable cost per unit	$30	$40
Expected units sold per year	60,000	40,000

The total fixed costs per year for the company are $1,104,000.

Required

a. What is the anticipated level of profits for the expected sales volumes?

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b. Assuming that the product mix is the same at the break-even point, compute the break-even point.

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c. If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break-even volume for Sundial, Inc.?

Step 1 of 3

a.

Calculate the anticipated level of profits for the expected sales volume

Sales revenue
AU Sunglasses (60,000 units × $80 per unit)	$ 4,800,000
NZ Sunglasses (40,000 units × $80 per unit)	$ 3,200,000	$ 8,000,000
Less: Variable costs
AU Sunglasses (60,000 units × $30 per unit)	$ 1,800,000
NZ Sunglasses (40,000 units × $40 per unit)	$ 1,600,000	$ 3,400,000
Contribution margin		$ 4,600,000
Less: Fixed costs		$ 1,104,000
Operating profit		$ 3,496,000

The company anticipated profit is $3,496,000 for the expected sales volume.