Case 7 - 6 5 Cost Volume Profit with Multiple Products, Sale Mix Changes, changes in Fixed and Variable Costs

[CodySaal]

Cost-Volume-Profit with Multiple Products, Sales Mix Changes, Changes in Fixed and Variable Costs Artistic Woodcrafting Inc. began several years ago as a one-person, cabinet-making operation. Employees were added as the business expanded. Last year, sales volume totaled $850,000. Volum first five months of the current year totaled $600,000, and sales were expected to be $1.6 million for the entire year

Question 4 - makes changes to the numbers with the increase of the common fixed cost by $70,000 per year. Increase of sales by 30% making it now $1,300,000 changing the sales mix 1:1. Please advise and provide a walk through. 

Please assist in providing a walk through 

[CodySaal]

I have attached my current formulas used and work through to better provide insight.

Grade I Fixed Cost (+) Grade II Fixed Cost (+) Common Fixed Cost

$225,000 (+) $70,000 = $295,000

Contribution Margin Grade I = Unit Price - Unit Variable Cost

$3,400 (-) $2,686 = $714

Contribution Margin Grade II = Unit Price - Unit Variable Cost

$1,600 (-) $1,328 = $272

Weighted Average Contr. Margin = Contr. of Grade I (x) .5 (+) Contr. of Grade II (x) .5

520 (x) .5 = Grade I 260 (x) $3,400 = $884,000

520 (x) .5 = Grade II 260 (x) $1,600 = $416,000
1,300,000 / (3400+1600) 5000 = 260

New Break Even Point = New Fixed Cost/ New Weighted Average Contr. Margin

$295,000 (/) $520 = 567

Current Op. Income = Contr. Grade I (+) Contr. Grade II (-) Fixed Costs

Operating Income

New Sales Volume (*) New Weighted Average Contr. Margin - New Common Fixed Costs

$2,080,000 (*) $493 - $105,000 = $1,025,440 - 70,000 = 955,440

Break Even Total Units = Total Fixed Cost/Weighted Average Contr. Margin

$295,000 (/) $1134 = 260

Break Even Units Grade I

520 (x) .5 = 260

Break Even Units Grade II

520 (x) .5 = 260

Change in CM = 260*(3400-714)+260(1600-272)

[mzimmerman · Accepted solution]

Hi @CodySaal 

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