The Ronowski Company has three product lines of belts—A, B, and C— with contribution margins of $3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company’s fixed costs for the period are $255,000.1) What is the company’s breakeven point in units, assuming that the given sales mix is maintained?2) If the sales mix is maintained, what is the total contribution margin when 200,000 units are sold? What is the operating income?3) What would operating income be if 20,000 units of A, 80,000 units of B, and 100,000 units of C were sold?4) What is the new breakeven point in units if these relationships persist in the next period?

Instructions are listed below.

Explanation:

Giving the following information:

The Ronowski Company has three product lines of belts—A, B, and C— with contribution margins of $3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company’s fixed costs for the period are $255,000.

First, we need to calculate the weighted participation of each line in the total sales:

Sales= 200,000

A= 20,000/200,000= 0.10

B= 100,000/200,000= 0.50

C= 80,000/200,000= 0.40

1) Break-even point (units)= Total fixed costs / (weighted average selling price - weighted average variable expense)

We don't have the information regarding selling price and variable cost. But we can calculate the weighted average contribution margin:

weighted average contribution margin= contribution margin of A* weighted participation on sales + cm of B* weighted participation on sales + cm of C*weighted participation on sales

weighted average contribution margin= 3*0.10 + 2*0.5 + 1*0.4= 1.7

Break-even point (units)= 255,000/1.7= 150,000 units

2) Total contribution margin= 20,000*3 + 100,000*2 + 80,000= $340,000

Operating income= contribution margin - fixed costs= 340,000 - 255,000= $85,000

3) A= 20,000 units

B= 80,000 units

C= 100,000 units

Total contribution margin= 20,000*3 + 80,000*2 + 100,000= $320,000

Operating income= contribution margin - fixed costs= 320,000 - 255,000= $65,000

4) We have to recalculate the weighted participation in sales:

Sales= 200,000

A= 20,000/200,000= 0.10

B= 80,000/200,000= 0.40

C= 100,000/200,000= 0.50

weighted average contribution margin= 3*0.10 + 2*0.4 + 1*0.5= 1.6

Break-even point (units)= 255,000/1.6= 159,375 units

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