Question

Richard’s Donuts sells three types of donuts: sugar-glazed, cream-filled and giant-sized. The following table shows the sales price and variable cost for each type. Richard’s incurs $198,720 a year in fixed costs. Assume that the store has a sales mix of three sugar-glazed, two cream-filled, and one giant-sized.

Type Sales Price Variable Cost Contribution Margin

Sugar-glazed $0.40 $0.24 $0.16

Cream-filled 0.56 0.28 0.28

Giant-sized   0.72 0.32 0.40

What amount of revenue would need to be generated by each type of donut for the company to earn $33,120 in operating income?

Answer 1

Step1:-Calculation of combined contribution:-

Particular	sugar-glazed	cream-filled	giant-sized
Sales	$0.40	$0.56	$0.72
Less variable cost	$0.24	$0.28	$0.32
Contribution per unit	$0.16	$0.28	$0.40
Sales mix	3	2	1
Total	$0.48	$0.56	$0.40

Total (Combined) contribution = $0.48 + $0.56 + $0.40 = $1.44

Step2:-What amount of revenue would need to be generated by each type of donut for the company to earn $33,120 in operating income?

Revenue(Sales) required earn profit=(Fixed cost+Desired profit ) / Total or combined Contribution

=($198,720+$33,120) / $1.44

=$1,61,000

Particular	sugar-glazed	cream-filled	giant-sized
sales mix	3	2	1
sales	$161000x3/6 =$80,500	$161000x2/6 =$53,667	$161000x1/6 =$26,833