Question

Express Delivery is a rapidly growing delivery service. Last year,  80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a  20% contribution margin). The other  20% of its revenue came from delivering non-standardized boxes (which provides a  70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $ 13,152,000.

(a) What is the company’s break-even point in total sales dollars? At the break-even point, how much of the company’s sales are provided by each type of service? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$ enter a dollar amount rounded to 0 decimal places
Sale of mail pouches and small boxes		$ enter a dollar amount rounded to 0 decimal places
Sale of non-standard boxes		$ enter a dollar amount rounded to 0 decimal places

(b) The company’s management would like to hold its fixed costs constant but shift its sales mix so that  60% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company’s break-even sales, and what amount of sales would be provided by each service type? (Use Weighted-Average Contribution Margin Ratio rounded to 4 decimal places e.g. 0.2552 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$ enter a dollar amount rounded to 0 decimal places
Sale of mail pouches and small boxes		$ enter a dollar amount rounded to 0 decimal places
Sale of non-standardized boxes		$ enter a dollar amount rounded to 0 decimal places

Answer 1

a) Weighted average contribution margin ratio = (80%*20%+20%*70%) = 30%

Total break even sales = 13152000/.30 = $43840000

Sale of mail pouches and small boxes = 43840000*80% = 35072000

Sale of non-standardized boxes = 43840000*20% = 8768000

b) Weighted average contribution margin ratio = (60%*70%+40%*20%) = 50%

Total break even sales = 13152000/.50 = 26304000

Sale of mail pouches and small boxes = 26304000*40% = $10521600

Sale of non standardized boxes = 26304000*60% = 15782400