Question

Ex 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. 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?

Total break-even sales		?
Sale of mail pouches and small boxes
Sale of non-standard boxes

(b) The company 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. what would be the company’s break-even sales and what amount of sales would be provided by each service type?

Total break-even sales
Sale of mail pouches and small boxes
Sale of non-standardized boxes

Answer 1

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

Total break even sales = Fixed cost/Weighted average contribution margin ratio = 13152000/.3 = $43840000

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

Sale of non-standard boxes = 43840000*20% = $8768000

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

Total break even sales = Fixed cost/Weighted average contribution margin ratio = 13152000/.5 = $26304000

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

Sale of non-standard boxes = 26304000*60% = 15782400