Question

Fat Cat Furniture store sells two types of products; cat beds and scratching posts. Over the past year Fat at sold 6,000 cat beds and 4,000 scratching posts, the sales mix of 6,000 beds to 4,000 posts creates a percentage of 60% for the cat beds and 40% for the scratching posts. Fat Cat’s total fixed costs are $40,000. The cat bed’s unit selling price is $44.00 and variable costs per bed are $24.00. The scratching post’s unit selling price is $100.00 and variable cost per post is $30.00.

1. Calculate the weighted average contribution margin per unit. ($40)

2. Calculate Fat Cat’s breakeven point in units for the “package” of products.

3. Calculate how many units of each product line the company must sell in order to breakeven.

4. Calculate the sales dollars required of each product line to breakeven Do not use the weighted average contribution margin ratio formula due to rounding issues. May still use the weighted average contribution margin per unit formula.

5. Prove the breakeven point by preparing a contribution margin income statement Make sure to provide three columns: one for Cat Beds, one for Scratching Posts, and one for Total.

6. The owner of Fat Cat Furniture wants to earn a $60,000 profit. Calculate the sales volume in units and total sales dollars of each product line the company must sell in order to earn $60,000 in profit. Do not use the weighted average contribution margin ratio formula due to rounding issues. May still use the weighted average contribution margin per unit formula.

I need help especially on the 2nd question.

Answer 1

Answer: See explanation

Step-by-step explanation:

1. Calculate the weighted average contribution margin per unit.

The weighted average contribution margin per unit will be:

= Contribution margin per unit × Sales mix ratio.

= ($20 × 60%) + ($70 × 40%)

= ($20 × 0.6) + ($70 × 0.4)

= $12 + $28

= $40

2. Calculate Fat Cat’s breakeven point in units for the “package” of products.

This will be:

= Fixed cost / Weighted average

= $40000 / $40

= 1000 units

3. Calculate how many units of each product line the company must sell in order to breakeven.

Breakeven for cat beds = 1000 × 60% = 1000 × 0.6 = 600 units

Breakeven for scratching post = 1000 × 40% = 1000 × 0.4 = 400 units