Question

Aquatic Aquarium, Inc., manufactures and sells aquariums, water pumps, and air filters using a sales mix of 1:2:2. The company’s fixed costs are $26,000. Other information is as follows: Selling Price Variable Cost per unit per unit Aquariums $60 $25 Water pumps 20 12 Air filters 10 3

Required: a) Determine the breakeven point in sales dollars for each product.

b) If a total of 6,000 units is sold in the proportion of the sales mix, determine the operating income.

Answer 1

Calculation of combined Sale price

=60*.20 + 20*.40 + 10*.40

=12+8+4 =$24

Calculation of combined Variable cost

=25*.20 + 12*.4 + 3*.4

=5+4.8+1.2=$11

So Contribution ratio =Sale price - Variable cost

=( 24-11)/24

=54.16%

So Break even sale over all=Fixed Cost/Contribution ratio

=26,000/54.16%

=$48,006

Break even product wise,

AQUARIUM=48,006*.2/1=$9601

WATER PUMB=48,006*.4/1=$19202

AIR FILTER=$48,006*.4/1=$19202

Calculation of operating income=Sale revenue-VC-Fixed cost

=[(60-25)*6000*1/5]+[(20-12)*6000*2/5]+[10-3)*6000*2/5] -26000

=42,000+19,200+16,800-26,000

=$52,000