The O'Brien Company Sells Two Products,A and B,with Contribution Margin $A$

question 78

Essay

The O'Brien Company sells two products,A and B,with contribution margin ratios of 40 and 30 percent and selling prices of $5 and $2.50 a unit.Fixed costs amount to $72,000 a month.Monthly sales average 30,000 units of product A and 40,000 units of product B.
Required:
a. Assuming that three unts of product $A$ are sold for every four unins of product $B$ , calculate the dollar sales volume necessary to break even.
b. As part of its cost accounting routine, O'Brien Company assigns $\$ 36,000$ in fixed costs to each prochuct each month. Calculat the break-even dollar sales volume for each product.
c. O'Brien Company is considering spending an additional $\$ 9,700$ a month on advertising, giving more emphasisto product $A$ andless emphasis to prochuct $\mathrm{B}$ . If its analysisis correct, sales of prochuct $\mathrm{A}$ will increase to 40,000 units a month, but sale of product B will fall to 32,000 units a month Recalculate the break-even sales volume, in dollars, at this new product mix. Should the proposal to spend the additional $\$ 9,700$ a month be accepted?

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Definitions:

Profit Centers

Divisions or segments of a company that are responsible for generating their own revenue and profit, with their performance measured based on profitability.

Square Footage

The total area of a space or surface measured in square feet.

Operating Income

The profit generated from a company's core business operations, excluding deductions of interest and taxes.

Balanced Scorecard

A strategic planning and management system used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals.