Question

The Janowski Company has three product lines of belts —​A,​B, and C —with contribution margins of $5​, $ 3 and $2​, respectively. The president foresees sales of 120,000 units in the coming​ period, consisting of 15,000 units of​ A,30,000 units of​ B, and75,000 units of C. The​ company's fixed costs for the period are $294,000. 1.What is the​ company's breakeven point in​ units, assuming that the given sales mix is​ maintained? 2.If the sales mix is​ maintained, what is the total contribution margin when 120,000 units are​ sold? What is the operating​ income? 3.What would operating income be if 15,000 units of​ A, 75,000 units of​ B, and 30,000 units of C were​ sold? What is the new breakeven point in units if these relationships persist in the next​ period? Requirement 1. What is the​ company's breakeven point in​ units, assuming that the given sales mix is​ maintained? Begin by determining the sales mix. For every 1 unit of​ A, ▼units of B are​ sold, and▼units of C are sold.

Answer 1

The WipeOut Ski Company, producing 5 units at $25 each, will incur a loss of $5. A simple glance at the average cost, which is $26 per unit, indicates that the firm is losing $1 per unit. Since the marginal cost of the fifth unit is $30, above the selling price, it is reducing profits.

Step-by-step explanation:

Regarding the WipeOut Ski Company situation, where the firm produces 5 units at $25 each:

Total Revenue for 5 units at $25 each is $125.

Total Costs when producing 5 units are $130.

The firm will experience a loss of $5, since costs exceed revenues.

To determine whether the company is making or losing money by looking at average cost:

If the price ($25) is less than the average cost ($26), the company is losing money.

The loss per unit is $1, leading to total losses of $5.

Regarding the marginal unit's contribution to profits:

The marginal cost of the fifth unit is $30, which is higher than the price.

Therefore, the marginal unit is decreasing overall profits, suggesting a reduction in quantity produced would be beneficial.