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Current Designs manufactures two different types of kayaks, rotomolded kayaks and composite

kayaks. The following information is available for each product line.

Rotomolded

Composite

Sales price/unit $950 $2,000

$950

$2,000

Variable costs/unit $570 $1,340

$570

$1,340

The companys fi xed costs are $820,000. An analysis of the sales mix identifi es that rotomolded

$820,000

kayaks make up 80% of the total units sold.

80%

Instructions

(a) Determine the weighted-average unit contribution margin for Current Designs.

(b) Determine the break-even point in units for Current Designs and identify how many units of

each type of kayak will be sold at the break-even point. (Round to the nearest whole number.)

(c) Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units

sold. Calculate the total number of units that would need to be sold to earn a net income of

$2,000,000 and identify how many units of each type of kayak will be sold at this level of income.

(Round to the nearest whole number.)

(d) Assume that Current Designs will have sales of $3,000,000 with two-thirds of the sales dollars in

rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $660,000

of fi xed costs are allocated to the rotomolded kayaks and $160,000 to the composite kayaks,

prepare a CVP income statement for each product line.

(e) Using the information in part (d), calculate the degree of operating leverage for each product

line and interpret your fi ndings. (Round to two decimal places.)

A.

Weighted Average

Rotomolded Kayaks

+

Composite Kayaks

=

Unit Contribution Margin

B

Break-even Sales =

Break-even Sales Distribution:

Rotomold

Composite

C

Target Net Income in Units:

Weighted-Average

Rotomolded Kayaks

+

Composite Kayaks

=

CM/Unit

Required Sales in Units =

Break-even Sales Distribution:

D

CVP Income Statement

Rotomolded

Composite

Sales

Variable Costs

Contribution Margin

Fixed Costs

Net Income

E

Degree of Operating Leverage

Rotomold

Composite

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