# Answered Essay: Suppose that Chillmax Company now sells both pairs of shoes and fabric carryalls. The pairs of shoes are priced at \$60 and h

Suppose that Chillmax Company now sells both pairs of shoes and fabric carryalls. The pairs of shoes are priced at \$60 and have variable costs of \$21 each. The carryalls are priced at \$36 and have variable costs of \$9 each. Total fixed cost for Chillmax as a whole equals \$91,500 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Chillmax expects to sell 3,500 pairs of shoes and 875 carryalls. Required: Form a package of shoes and carryalls based on the sales mix expected for the coming year. Calculate the break-even point in units for pairs of shoes and for carryalls. Check your answer by preparing a contribution margin income statement.

1. Sale Mix for Shoes and carryalls is 3,500: 875 which is then reduced to the smalles possible whole number which is

4:1 as calculated below:

 3500 875 700 175 divided by 5 140 35 divided by 5 28 7 divided by 5 4 1 divided by 7

Now package of shoes and carryalls based on sale mix is

 Product Price Variable Cost Unit Contribution Margin Sales Mix Package Contribution Margin a b c=a-b d e= c*d Shoes 60 21 39 4 156 Carryalls 36 9 27 1 27 Package total 183

2. Break even unit in pairs for shoes and carryalls will be total fixed costs divided by package contribution margin

 Total Fixed Costs 91,500 Package Contribution Margin 183 Break even packages 500 Break even pair for Shoes (500*4) 2,000 pairs Break even pair for Carryalls (500*1) 500 pairs 2,500 pairs

3. Contribution Margin Income statement based on break even units is as prepared below:

 Income Statement Shoes Carryalls Total Sales 120000 18000 138000 2,000*60 500*36 Less: Variable Costs 42000 4500 46500 2,000*21 500*9 Contribution Margin 91500 Less: Fixed Costs 91,500 Net Profit 0
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