Assume the Mountain Furniture Company sells two kinds of tables, oak and pine. A
ID: 2366762 • Letter: A
Question
Assume the Mountain Furniture Company sells two kinds of tables, oak and pine. At a 1:1 (one-to-one) unit sales mix in which Mountain sells one oak table for every pine table, the following revenue and cost information is available:Oak Table Pine Table
Unit selling price $1,200 $400
Unit variable costs ( 300) (300)
Unit contribution margin $ 900 $100
Fixed costs per month $15,000
Assuming a 1:1 sales mix, calculate Mountain Furniture’s current monthly average unit contribution margin ration, break-even sales volume, and number of units of Pine and Oak tables at break-even point.
Explanation / Answer
1:1 sales mix means we can consider a single package containing both the tables... so.. Unit selling price of package : $1,600 Unit variable cost of package : $600 Unit contribution margin of package : $1,000 Fixed costs per month : $ 15,000 Now, average contribution margin ratio = (contribution margin)/(selling price) = 1000/1600 Break even sales volume = [(fixed costs per month)/(contribution margin)]*price = (15000/1000)*1600 = $24,000 per month Number of units of packages sold at breakeven... = 15000/1000 = 15 (i.e. 15 oak and 15 pine tables)