Assume that through aggressive marketing The Best Team is able to shift its sales mix toward more sales of jackets. Total sales remain $4 million per month, but now 40 percent of this revenue stems from sales of jackets, shoes 40 percent, watches 10 percent and 10 percent for shorts. Fixed cost is still $800,000 per month. Using the new sales mix compute:
- Average contribution margin ratio of total monthly sales.
- Monthly operating income.
- The monthly break-even sales volume (stated in dollars).
- Explain clearly why the company’s financial picture changed with the new sales mix.
- If the costs for all the products would decrease with 10 percent would the operating income then increase with 10 percent. Explain
- Suppose that due to increased competition The Best Team needs to decrease the prices of Watches and Jackets with 30 percent. The same time the fixed cost increased to $1,200,000 otherwise everything else remains the same. Calculate the new break-even point and operating income.
- Comment on the new results (from question 16) compared to the base case in Part 1. Has the risk profile of the company changed?