Question

Scenario 5

Media Wise sells a range of media products in package deals. The products sold within bundles are as follows.  

	TV	Stand	Speaker
Selling Price (£)	400	50	40
Variable Cost (£)	250	30	25

Package A consists of a TV and a stand and is sold for a discounted price of £420. Package B consists of a TV, a stand and two speakers and is sold for a discounted price of £480. Currently packages are sold in a ratio of 2 Package As for every 3 Package Bs and 600 packages are sold each month. Fixed costs are expected to be £82,000 for the month.  

Question 5

Calculate the number of packages which need to be sold in order to achieve a profit of £15,000 in the month assuming the sales mix remains unchanged.  

Answer 1

Working Note :-Computation of Contribution Margin Ratio
Pakage	Sales (a)	Variable Cost (b)	Contribution (c=a-b)
Package -A ( TV, Stand )	$420.00	$280.00	$140.00
		(250+30)
Package-B (TV,stand 2 Speaker)	$480.00	$330.00	$150.00
		(250+30+25*2)

Computation of Weighted Average Contribution Margin Ratio
Package	Sales mix % (a)	Contribution (b)	Weighted average contribution Margin (WACM) (a*b)
Package-A (2/5)	40%	140.00	56.00
Package-B (3/5)	60%	150.00	90.00
Weighted Average CM	146.00

Break Even Point = (Fixed Cost+ Target Profit)/ WACM

(82000+15000)/146=664 Approx

Hence , 664 Package consis of (664X40%)i.e. 266 Package A and 398 Package B need to be solved to achieve target Profit of 15000