Fidelity Multimedia sells audio and video equipment and car stereo products. After performing a study of fixed and variable costs in the prior year, the company prepared a product-line profit statement as follows:
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Fidelity Multimedia Profitability Analysis For the Year Ended December 31, 2017 |
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|---|---|---|---|---|
| Audio | Video | Car | Total | |
| Sales | $3,250,000 | $1,950,000 | $1,300,000 | $6,500,000 |
| Less variable costs: | ||||
| Cost of merchandise | 1,920,000 | 1,374,000 | 617,000 | 3,911,000 |
| Salary, part-time staff | 192,500 | 108,000 | 59,000 | 359,500 |
| Total variable costs | 2,112,500 | 1,482,000 | 676,000 | 4,270,500 |
| Contribution margin | 1,137,500 | 468,000 | 624,000 | 2,229,500 |
| Less direct fixed costs: | ||||
| Salary, full-time staff | 325,000 | 240,000 | 220,000 | 785,000 |
| Total | $ 812,500 | $ 228,000 | $ 404,000 | $1,444,500 |
| Less common fixed costs: | ||||
| Advertising | 115,000 | |||
| Utilities | 25,000 | |||
| Other administrative costs | 570,000 | |||
| Total common fixed costs | 710,000 | |||
| Profit | $ 734,500 | |||
Delegate your assignment to our experts and they will do the rest.
a. Calculate the contribution margin ratios for the audio, video, and car product lines.
For the audio product line, the contribution margin is
For the video product line, the contribution margin is
For the car product line, the contribution margin is
b. What would be the effect on profit of a $125,000 increase in sales of audio equipment compared with a $125,000 increase in sales of video equipment or a $125,000 increase in sales of car equipment? Based on this limited information, which product line would you recommend expanding?
The effect on profit based on a $125,000 increase in sales of a particular product line is the product of the increased sales and its contribution margin ratio.
For the audio product line, the increase in profit is
For the video product line, the increase in profit is
For the car product line, the increase in profit is
Based on the limited information provided and the above calculation, I would recommend the expansion of the car product line as it has the greatest contribution margin ratio.
c. Calculate the break-even level of sales dollars for the company as a whole. (Round to the nearest dollar.)
Contribution margin ratio for all product lines is calculated as
Break-even sales is the ratio of the total fixed costs to the contribution margin ratio for all products. The value has been calculated as shown below
d. Calculate sales needed to achieve a profit of $1,800,000, assuming the current mix. (Round to the nearest dollar.)
Earning a profit of $18000000 requires the following amount of sales
e. Determine the sales of audio, video, and car products in the total sales amount calculated for part d. (Round to the nearest dollar.)
Audio =
Video =
Car =
