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 $13,596,900.

(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 2 decimal places e.g. 0.22 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$Enter a dollar amount
Sale of mail pouches and small boxes		$Enter a dollar amount
Sale of non-standard boxes		$Enter a dollar amount

(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 2 decimal places e.g. 0.22 and round final answers to 0 decimal places, e.g. 2,510.)

Total break-even sales		$Enter a dollar amount
Sale of mail pouches and small boxes		$Enter a dollar amount
Sale of non-standardized boxes		$Enter a dollar amount

Answer 1

Break-even point = Fixed costs/Weighted-Average Contribution Margin Ratio
a
Weighted-Average Contribution Margin Ratio	0.30	=(80%*20%)+(20%*70%)
Total break-even sales	45323000	=13596900/0.30
Sale of mail pouches and small boxes	36258400	=45323000*80%
Sale of non-standard boxes	9064600	=45323000*20%
b
Weighted-Average Contribution Margin Ratio	0.50	=(40%*20%)+(60%*70%)
Total break-even sales	27193800	=13596900/0.50
Sale of mail pouches and small boxes	10877520	=27193800*40%
Sale of non-standard boxes	16316280	=27193800*60%