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(Solved) The O'Brien Company sells two products, A and B, with contribution margin ratios of 40 and 30 percent and selling prices of $5 and $2.50 a unit....


The O'Brien Company sells two products, A and B, with contribution margin ratios of 40 and 30 percent and selling prices of $5 and $2.50 a unit. Fixed costs amount to $72,000 a month. Monthly sales average 30,000 units of product A and 40,000 units of product B.

Required:

a.Assuming that three units of product A are sold for every four units of product B, calculate the dollar sales volume necessary to break even.

b.As part of its cost accounting routine, O'Brien Company assigns $36,000 in fixed costs to each product each month. Calculate the break-even dollar sales volume for each product.

c. O'Brien Company is considering spending an additional $9,700 a month on advertising, giving more emphasis to product A and less emphasis to product B. If its analysis is correct, sales of product A will increase to 40,000 units a month, but sales of product B will fall to 32,000 units a month. Recalculate the break-even sales volume, in dollars, at this new product mix. Should the proposal to spend the additional $9,700 a month be accepted?

 


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