A company sells two products: a standard model and a deluxe model. The standard model sells for...

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Finance

Acompany sells two products: a standard model and a deluxe model.The standard model sells for $50 and has a contribution marginratio of 40%. The deluxe model sells for $100 and has acontribution margin ratio of 50%. Last year, the company sold 5000standard units and 2500 deluxe units.
There is $200,000 of cost that is “fixed” in the sense that itdoes not vary with the number of units produced. However, $100,000of this cost is Direct Fixed Costs that are allocated betweenproducts as 80% to the deluxe product, while 20% is allocated tothe standard model. The remaining $100,000 is Allocated Fixed Coststhat are allocated equally between the two products.
1. In the space below, complete the following segmented incomestatement to calculate profit by product-line and for the overallcompany.
Standard         Deluxe                Total_
Sales
VariableCost_______
Contribution Margin
Direct FixedCosts
Segment Margin
Allocated FixedCosts_
Pre-Tax Profit
2. If the sales mix stays the same as last year, how manystandard and deluxe units would have to be sold next year in orderto earn $42,000 after taxes of 40%?
3. If the sales mix stays the same as last year, what salesfrom standard and deluxe models would have to be in order to earn$42,000 after taxes of 40%?
4. Assume that the company decided to eliminate the deluxemodel with the hope of increasing their profit by $5,000. Onceagain, they were disappointed to find that their expected resultsdid not materialize. In the space below, compute the effect onprofit of eliminating the deluxe model and briefly explain the flawin the company’s plan.

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3.8 Ratings (543 Votes)

Particulars Standard Deluxe Total Sales 250000 250000 500000 Variable Costs 150000 125000 275000 Contribution MarginSalesVC 100000 125000 225000 Direct Fixed CostsDFC 20000 80000 100000 Segment MarginContributionDFC 80000 45000 125000 Allocated Fixed Costs50of 100000 each 50000 50000 100000 Pretax ProfitSegment Margin Allocated Fixed Cost 30000 See Answer

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Acompany sells two products: a standard model and a deluxe model.The standard model sells for $50 and has a contribution marginratio of 40%. The deluxe model sells for $100 and has acontribution margin ratio of 50%. Last year, the company sold 5000standard units and 2500 deluxe units.There is $200,000 of cost that is “fixed” in the sense that itdoes not vary with the number of units produced. However, $100,000of this cost is Direct Fixed Costs that are allocated betweenproducts as 80% to the deluxe product, while 20% is allocated tothe standard model. The remaining $100,000 is Allocated Fixed Coststhat are allocated equally between the two products.1. In the space below, complete the following segmented incomestatement to calculate profit by product-line and for the overallcompany.Standard Deluxe Total___ SalesVariableCost_____________________________________________________________Contribution Margin Direct FixedCosts________________________________________________________Segment MarginAllocated FixedCosts_____________________________________________________ Pre-Tax Profit2. If the sales mix stays the same as last year, how manystandard and deluxe units would have to be sold next year in orderto earn $42,000 after taxes of 40%?3. If the sales mix stays the same as last year, what salesfrom standard and deluxe models would have to be in order to earn$42,000 after taxes of 40%?4. Assume that the company decided to eliminate the deluxemodel with the hope of increasing their profit by $5,000. Onceagain, they were disappointed to find that their expected resultsdid not materialize. In the space below, compute the effect onprofit of eliminating the deluxe model and briefly explain the flawin the company’s plan.