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QUIZ 2 ANSWER KEY

ANSWER KEY Quiz 2121 (Cream)

1. PJs Coffee sells three products, Lattes, Velvet Ices, and Regular Coffee. The forecast their unit sales by first estimating the projected total sales, and then using the historical percentage of each product out of the total sales as shown below: Velvet Ice Total Sales Historical Sales Mix (Units) Unit Sales Price Total Sales Variable Cost % 25% 4,000 $4.50 $18,000.00 30% Latte 16,000 37.5% 6,000 $4.00 $24,000.00 40% Regular 37.5% 6,000 $3.00 $18,000.00 50%

PJs also has Fixed Costs totaling $21,000. At the Break-Even point, what are Total Sales and Total Contribution Margin generated by sales of Velvet Ice?

First, Historical Sales Mix is in Units, so we cannot use it in our calculations since we will be dealing with dollar amounts. Second, 100-Variable Cost % = Contribution Margin Ratio, so we already know the CMR for each product. Velvet Ice Latte Regular Total 18,000/60,000 24,000/60,000 18,000/60,000 30% 40% 30% 100% 0.3(18,000) 0.4(24,000) 0.5(18,000) 5,400 9,600 9000 24,000 70% 60% 50% 60%* *(60K-24K) /60K 30%(35,000) 40%(35,000) 30%(35,000) 21,000/0.6 10,500 30%(10,500) 3,150 70%(10,500) 7,350 14,000 40%(14,000) 5,600 60%(14,000) 8,400 10,500 50%(10,500) 5,250 50%(10,500) 5,250 35,000

Sales Mix $ (calculation) Sales Mix $ Old Variable Cost (calculation) Variable Cost $ CMratio BEP $ Sales (calculation) BEP $ Sales BEP Variable Cost (calculation) BEP Variable Cost BEP CM (calculation) BEP CM

14,000

21,000

2. George Rodrigue, the New Orleans Blue Dog painter, sells his painting in three main sizes: Large Banners, Medium Wall Portraits, and Smaller Posters. The Estimated Sales and associated Variable Expenses of these products are given in the table below. Large Banners Est. Sales Variable Costs $50,000 $12,500 Medium Prints $200,000 $70,000 Small Posters $150,000 $67,500 TOTAL $400,000 $150,000

If George has total fixed costs of $115,000 what is the Total Sales Dollars and Total Contribution Margin at the Break-Even Point? First, the question is asking about breakeven point total sales in dollars (BEP) (TS$) and total contribution margin (TCM). If the company is breaking even, then it is not making any profit or loss, so net operating income is 0, so if fixed costs are $115,000, then TCM has to be $115,000. At breakeven point, TCM is always equal to total fixed costs (TFC). $400,000 - $150,000 = $250,000 $115,000/0.625 = $184,000 TCM = TFC = $115,000 $250,000/$400,000 = 0.625 = CMR

ANSWER KEY Quiz 2122 (Purple)

1. PJs Coffee sells three products, Lattes, Velvet Ices, and Regular Coffee. The forecast their unit sales by first estimating the projected total sales, and then using the historical percentage of each product out of the total sales as shown below: Velvet Ice Latte Regular Total Sales 16,000 Historical Sales Mix (Units) 25% 37.5% 37.5% Unit Sales 4,000 6,000 6,000 Price $4.50 $4.00 $3.00 Total Sales $18,000.00 $24,000.00 $18,000.00 Variable Cost % 30% 40% 50% PJs also has Fixed Costs totaling $21,000. At the Break-Even point, what are Total Sales and Total Contribution Margin generated by sales of Lattes? First, Historical Sales Mix is in Units, so we cannot use it in our calculations since we will be dealing with dollar amounts. Second, 100-Variable Cost % = Contribution Margin Ratio, so we already know the CMR for each product. Velvet Ice Latte Regular Total 18,000/60,000 24,000/60,000 18,000/60,000 30% 40% 30% 100% 0.3(18,000) 0.4(24,000) 0.5(18,000) 5,400 9,600 9000 24,000 70% 60% 50% 60%* *(60,K-24K)/60K 30%(35,000) 40%(35,000) 30%(35,000) 21,000/0.6 10,500 30%(10,500) 3,150 70%(10,500) 7,350 14,000 40%(14,000) 5,600 60%(14,000) 8,400 10,500 50%(10,500) 5,250 50%(10,500) 5,250 35,000

Sales Mix $ (calculation) Sales Mix $ Old Variable Cost (calculation) Variable Cost $ CMratio BEP $ Sales (calculation) BEP $ Sales BEP Variable Cost (calculation) BEP Variable Cost BEP CM (calculation) BEP CM

14,000

21,000

2. George Rodrigue, the New Orleans Blue Dog painter, sells his painting in three main sizes: Large Banners, Medium Wall Portraits, and Smaller Posters. The Estimated Sales and associated Variable Expenses of these products are given in the table below. Large Banners Est. Sales Variable Costs $125,000 $37,500 Medium Prints $275,000 $110,000 Small Posters $100,000 $45,000 TOTAL $500,000 $192,500

If George has total fixed costs of $150,000 what is the Total Sales Dollars and Total Contribution Margin at the Break-Even Point? First, the question is asking about breakeven point total sales in dollars (BEP) (TS$) and total contribution margin (TCM). If the company is breaking even, then it is not making any profit or loss, so net operating income is 0, so if fixed costs are $150,000, then TCM has to be $150,000. At breakeven point, TCM is always equal to total fixed costs (TFC). $500,000 - $192,500 = $307,500 $150,000/0.615 = $243,902 TCM = TFC = $150,000 $307,500/$500,000 = 0.615 = CMR

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