Question

The Blanket Company (TBC) manufactures two types of blankets. One is made of nylon. The other...

The Blanket Company (TBC) manufactures two types of blankets. One is made of nylon. The other is made of wool. The budgeted per-unit contribution margin for each product follows.

Nylon Wool
Sales price $ 148 $ 200
Variable cost per unit (83 ) (90 )
Contribution margin per unit $ 65 $ 110

TBC expects to incur annual fixed costs of $776,000. The relative sales mix of the products is 80 percent for Nylon and 20 percent for Wool.

Required

  1. Determine the total number of products (units of Nylon and Wool combined) TBC must sell to earn a $112,000 profit.

  2. How many units each of Nylon and Wool blankets must TBC sell to earn a $112,000 profit?

  3. Prepare an income statement using the contribution margin format.

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Homework Answers

Answer #1

Calculation of Weighted average contributon margin

-------------------------------------------------- Nylon Wool

Sales price 148 200

(-) Variable cost 83 90

= Contribution margin per unit 65 110

sales mix (weighted average) 80% 20%

Weighted average unit contribution 52     22

Total weighted contribution = 52 + 22 = 74

Weighted average unit contribution = Contribution margin per unit * sales mix (weighted average )

Total number of products to earn desired profit of 112,000 =

(Fixed cost + Desired profit) / Weighted average unit contribution

= ( 776,000 + 112,000 ) / 74 = 12,000 units

Units of Nylon = 12,000 * 80% = 9,600

Units of Wool = 12,000 * 20% = 2,400

Total number of products to earn desired profit of 112,000 = 12,000 units
Units of Nylon to earn profit of 112,000 = 9,600 units

Units of Wool to earn profit of 112,000 = 2,400 units

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