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Favorites Company produces toy alligators and toy dolphins. Fixed costs are

$1,173,000

per year. Sales revenue and variable costs per unit are as follow:

	Alligators	Dolphins
Sales price	$16	$23
Variable costs	9	6

Requirements

(a)	Suppose the company currently sells 153,000 alligators per year and 72,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?
(b)	Suppose the company currently sells 72,000 alligators per year and 153,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?
(c)	Explain why the total number of toys needed to break even in part a is the same as or different from the number in part b.

Begin by determining the sales mix ratios for each product. (Round the ratios to two decimal places.)

Alligators
Dolphins

Next determine the formula used to calculate the total units needed to breakeven, the calculate the total units to breakeven. (Abbreviation used: CM = Contribution margin; FC = Fixed costs; SP = Sales price; VC = Variable costs)

Total		Alligators				Dolphins				Total units to
FC	/ [ (	CM per unit	x	Sales mix ratio	) + (	CM per unit	x	Sales mix ratio	) ] =	breakeven
$	/ [ (		x	) + (		x		) ] =

To break even each year, the company must sell ------------- alligators and---------- dolphins.

Requirement (b)

Begin by determining the sales mix ratios for each product. (Round the ratios to two decimal places.)

Alligators	Dolphins

Using the formula you determined in requirement (a), calculate the total units to breakeven and the units the company would need to sell for each product to break even. (Round your answers up to the nearest whole number.)

The total units to breakeven each year is units, with the company having to sell alligators and dolphins.

Requirement (c) Explain why the total number of toys needed to break even in part a is the same as or different from the number in part b.

The total number of toys needed to break even are . This is because the sales mix ratio

for the higher contribution margin product, dolphins, ).

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