Question

The Jenkins Company has three product lines of beer mugs—​A, ​B, and C—with contribution margins of $4​, $3​, and $2​, respectively. The president foresees sales of 266,000 units in the coming​ period, consisting of 38,000 units of​ A, 152,000 units of​ B, and 76,000 units of C. The​ company's fixed costs for the period are $414,000.

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 266,000 units are​ sold? What is the operating​ income?
3.What would operating income be if the company sold 38,000 units of​ A, 76,000 units of​ B, and 152,000 units of​ C? What is the new breakeven point in units if these relationships persist in the next​ period?
4.Comparing the breakeven points in requirements 1 and​ 3, is it always better for a company to choose the sales mix that yields the lower breakeven​ point? Explain.

Answer 1

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can create a table. The profit-maximizing quantity of output is the level at which marginal cost equals marginal revenue.

Step-by-step explanation:

To calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level, we can create a table:

Output LevelTotal RevenueMarginal RevenueTotal CostMarginal Cost1$20$20$40$202$40$20$45$53$60$20$55$104$80$20$70$155$100$20$100$30

The profit-maximizing quantity of output is the level at which marginal cost equals marginal revenue. In this case, it occurs at an output level of 4 units. On the diagram, the total revenue curve would start from the origin and increase steeply, while the total cost curve would start from the fixed cost and increase gradually. The marginal revenue curve would be a straight line parallel to the quantity axis, and the marginal cost curve would start from the initial marginal cost and increase gradually.