Question

Athletics Pty Ltd is a manufacturer of custom-designed sporting caps. Their product range includes regular and premium caps. Last month, 1200 regular and 2400 premium caps were produced and sold. Average prices and costs per unit for the month are as follows:

	Regular	Premium
Selling price	$22.15	$45.30
Variable costs	4.31	6.91
Allocated production fixed costs	8.17	24.92
Allocated corporate fixed costs	5.62	5.65

The firm’s tax rate is 30%.

Required:

1. Assuming the sales mix remains constant, identify how many units of each product line will need to be sold to:
   1. Break-even.
   2. Achieve a before-tax profit of $1.0m
   3. Achieve a after-tax profit of $900,000.
2. Illustrate how sensitive the firm’s break-even point is to changes to the sales mix.

Answer 1

The firms break even is highly effected by sales mix.