Question

Garden Supply Company sells only two products, Product G1 and Product G2. Product G1 Product G2...

Garden Supply Company sells only two products, Product G1 and Product G2.

Product G1

Product G2

Total

Selling price

$36

$59

Variable cost per unit

$28

$43

Total fixed costs

$405,000

Garden Supply sells 4 units of Product G1 for each 3 units it sells of Product G2. Garden Supply has a tax rate of 20%.

Required:

a.   What is the breakeven point in units for each product, assuming the sales mix is 4 units of Product G1 for each 3 units of Product G2?

b.   How many units of each product would be sold if Garden Supply desired an after-tax net income of $385,000, using its tax rate of 20%?

Homework Answers

Answer #1

a)

Contribution per unit of Product, G1 = 36 -28 = $8

Contribution per unit of Product G2 = 59 - 43 = $16

Sales mix:

4 units of Product G1 for each 3 units of Product G2

Weighted average contribution per unit = [(4*8) + (3*16)] / 7 = $11.43 (Approximately)

Break Even Point = Fixed cost / Weighted average contribution per unit

= 4,05,000 / 11.43

= 35,433 units (Approximately)

Units Break - up:

Product G1 = 35,433 * 4/7 = 20,247 units (Approximately)

Product G2 = 35,433 * 3/7 = 15,186 units (Approximately)

b)

Desired operating profit = 3,85,000/80*100 = $4,81,250

Units to be sold to earn desired profit = (Fixed cost + Desired profit) / Weighted average contribution per unit

= (4,05,000 + 4,81,250) / 11.43

= 77,537 (Approximately)

Units Break-up:

Product G1 = 77,537 * 4/7 = 44,307 units (Approximately)

Product G2 = 77,537 * 3/7 = 33,230 units (Approximately)

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