Question

3. Sales mix and CVP Analysis: Goalie’s Ball, Inc. produces and sells two different types of soccer goals: basic and premium. Monthly information regarding the two types of goals are shown below:

	Basic			Premium			Total
Sales	$	1,080,000			$720,000		$1,800,000
Variable costs		$315,400			$294,100		$609,500

Fixed expenses are $517,250 per month in total for the company.

1. Determine the sales mix for the two products
2. Determine the contribution margin ratio for each of the two products (round your decimal answer to four decimal places, i.e. 0.3149322 = 0.3149 = 31.49%)
3. Calculate the weighted average contribution margin (WACM) ratio (round your decimal answer to four decimal places, i.e. 0.3149322 = 0.3149 = 31.49%)
4. Calculate Goalie’s Ball’s break-even point in dollars. Round to the nearest cent (i.e. two decimal places)
5. The manager of Goalie’s Ball is considering a shift in sales mix, increasing sales of basic goals to 65% and decreasing sales of premium goals to 35%. How would this affect the break-even point in dollars? Briefly explain your answer.

Answer 1

		Premium		Total
Basic
Sales	1,080,000		$720,000	$1,800,000
Variable costs	$315,400		$294,100	$609,500
a.Sales Mix = Sales of product/Total Sales
Basic	60.00%
Premium	40.00%
b.
Contribution Margin Ratio = (Sales - Variable costs)/Sales
Basic	70.80%
Premium	59.15%
c. Weighted average CM ratio	66.14%
d.Break even point in Dollars = Fixed costs/Weighted average CM ratio
782,066.36
e.Weighted average CM Ratio	66.72%
Break even point	775,242.42
Break even sales reduced since the ratio of product with higher CM ratio increased leading to an increase in weighted average contribution margin ratio