Question

Jonah Hill Company manufactures two products. Information about the two products is as follows:

	Product X	Product Y
Selling price per unit	$80	$30
Variable costs per unit	40	20
Contribution margin per unit	$40	$10

The company expects fixed costs to be $185,000. The firm expects 40% of its sales (in units) to be Product X and 60% to be Product Y (a sales mix of 4:6).

1. Calculate the weighted average contribution margin or contribution margin by package

                      (4 marks)

        

2. Determine the breakeven point in total units, and how much would come from products X and Y                                                                                                                            (7 marks)

b.

3. Determine the level of sales (in dollars) necessary to generate operating income of $185,000                                                                                                   (6 marks)

4. Identify and explain 3 separate ways in which the company can use the above information to improve overall profitability.                                                                                                         (3 marks)

Answer 1

Answer;

a. Weighted Average Contribution per unit = Total Contribution / Total Cost

= 220 / 10

= 22 Per unit

Product	Contribution	Sales Mix(4:6)	Total contribution
X	40	4	160
Y	10	6	60
Total		10	220

b. Overall Break Even Point = Overall Fixed Cost / Overall weighted average contribution per unit

= 185000 / 22

= 8409 units

Product X = 8409 * 4 / 10 = 3364 Units

Product Y = 8409 * 6 / 10 = 5045 Units

c. Sales = (Fixed cost + Profit) / Contribution per unit

= (185000 + 185000) / 22

= 16818 units

Product X = 16818 * 4 / 10 = 6728 Units

Product Y = 16818 * 6 / 10 = 10090 Units

Sales of product X = 6728 * 80 = 538240

Sales of product Y = 10090 * 30 = 302700

Overall sales = 538240 + 302700

= 840940

d. 1. Increasing the sales volume

2. Cost cutting

3. Change in Sales mix