Accounting Notes
3-27 (30 min.) Sales mix, new and upgrade customers.
1. | NewCustomers | UpgradeCustomers | SPVCUCMU | $275 100 175 | $100 50 50 | The 60%/40% sales mix implies that, in each bundle, 3 units are sold to new customers and 2 units are sold to upgrade customers. Contribution margin of the bundle = 3 $175 + 2 $50 = $525 + $100 = $625 Breakeven point in bundles = = 24,000 bundles Breakeven point in units is: Sales to new customers: | 24,000 bundles 3 units per bundle | 72,000 units | Sales to upgrade customers: | 24,000 bundles 2 units per bundle | 48,000 units | Total number of units to breakeven (rounded) | 120,000 units | Alternatively, Let S = Number of units sold to upgrade customers 1.5S = Number of units sold to new customers Revenues – Variable costs – Fixed costs = Operating income [$275 (1.5S) + $100S] – [$100 (1.5S) + $50S] – $15,000,000 = OI $512.5S – $200S – $15,000,000 = OI Breakeven point is 120,000 units when OI = $0 because $312.5S = $15,000,000 S = 48,000 units sold to upgrade customers 1.5S = 72,000 units sold to new customers BEP = 120,000 units Check Revenues ($275 72,000) + ($100 48,000) $24,600,000 Variable costs ($100 72,000) + ($50 48,000) 9,600,000 Contribution margin 15,000,000 Fixed costs 15,000,000 Operating income $ 0 2. When 220,000 units are sold, mix is:
Units sold to new customers (60% 220,000) 132,000 Units sold to upgrade customers (40% 220,000) 88,000 Revenues ($275 132,000) + ($100 88,000) $45,100,000 Variable costs ($100 132,000) + ($50 88,000) 17,600,000 Contribution margin 27,500,000 Fixed costs 15,000,000 Operating income $12,500,000 3a. At New 40%/Upgrade 60% mix, each bundle contains 2 units sold to new customers and 3 units sold to upgrade customers.
1. | NewCustomers | UpgradeCustomers | SPVCUCMU | $275 100 175 | $100 50 50 | The 60%/40% sales mix implies that, in each bundle, 3 units are sold to new customers and 2 units are sold to upgrade customers. Contribution margin of the bundle = 3 $175 + 2 $50 = $525 + $100 = $625 Breakeven point in bundles = = 24,000 bundles Breakeven point in units is: Sales to new customers: | 24,000 bundles 3 units per bundle | 72,000 units | Sales to upgrade customers: | 24,000 bundles 2 units per bundle | 48,000 units | Total number of units to breakeven (rounded) | 120,000 units | Alternatively, Let S = Number of units sold to upgrade customers 1.5S = Number of units sold to new customers Revenues – Variable costs – Fixed costs = Operating income [$275 (1.5S) + $100S] – [$100 (1.5S) + $50S] – $15,000,000 = OI $512.5S – $200S – $15,000,000 = OI Breakeven point is 120,000 units when OI = $0 because $312.5S = $15,000,000 S = 48,000 units sold to upgrade customers 1.5S = 72,000 units sold to new customers BEP = 120,000 units Check Revenues ($275 72,000) + ($100 48,000) $24,600,000 Variable costs ($100 72,000) + ($50 48,000) 9,600,000 Contribution margin 15,000,000 Fixed costs 15,000,000 Operating income $ 0 2. When 220,000 units are sold, mix is:
Units sold to new customers (60% 220,000) 132,000 Units sold to upgrade customers (40% 220,000) 88,000 Revenues ($275 132,000) + ($100 88,000) $45,100,000 Variable costs ($100 132,000) + ($50 88,000) 17,600,000 Contribution margin 27,500,000 Fixed costs 15,000,000 Operating income $12,500,000 3a. At New 40%/Upgrade 60% mix, each bundle contains 2 units sold to new customers and 3 units sold to upgrade customers.