Problem 6-28 Sales Mix; Commission Structure; MultiproductBreak-Even Analysis [LO6-9]
Carbex, Inc., produces cutlery sets out of high-quality wood andsteel. The company makes a Standard set and a Deluxe set and sellsthem to retail department stores throughout the country. TheStandard set sells for $86, and the Deluxe set sells for $101. Thevariable expenses associated with each set are given below.
| Standard | Deluxe |
| Variable production costs | $ | 28.00 | $ | 43.00 |
| Sales commissions (28% of sales price) | $ | 24.08 | $ | 28.28 |
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The company’s fixed expenses each month are:
| |
| Advertising | $ | 118,000 |
| Depreciation | $ | 25,600 |
| Administrative | $ | 69,500 |
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Mary Parsons, the financial vice president, watches salescommissions carefully and has noted that they have risen steadilyover the last year. For this reason, she was shocked to find thateven though sales have increased, profits for the currentmonth—May—are down substantially from April. Sales, in sets, forthe last two months are given below:
| Standard | Deluxe | Total |
| April | 5,300 | 3,300 | 8,600 |
| May | 2,300 | 6,300 | 8,600 |
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Required:
1-a. Prepare contribution format income statement for April.
1-b. Prepare contribution format income statement for May.
3-a. Compute the break-even point in dollar sales for April.
3-b. Would the break-even point in May be higher or lower thanthe break-even point in April?
