Cost-Volume-Profit Analysis for The Best Team, Inc.

The Best Team Inc., sells shoes, watches, shorts and jackets. The following is selected per-unit information for these four products:

Shoes   Watches Shorts  Jackets

Sales Price $50 $200 $25 $250
Variable costs and expenses $25 $40 $15 $75

Fixed costs and expenses amount to $800,000 per month.
The Best Team has total sales of $4 million per month, of which 60 percent result from the sale of shoes, 5 percent from watches, 15 percent form shorts and the rest from the sale of jackets.
Part 1.

1. Compute separately the contribution margin ratio for each line of products.

Assuming the current sales mix, compute:

2. Average contribution margin ratio of total monthly sales.
3. Monthly operating income.
4. What is the company’s operating income if monthly sales level is $2,000,000?
5. The monthly break-even sales volume (stated in dollars).
6. The company’s margin of safety if current monthly sales level is $4,000,000.
7. If fixed costs would change to 540,000 what would happen with the break-even point? Explain the result.
8. If the fixed costs changed to 540,000 and sales was $4,000,000 what would happen to the operating income? Explain the result.
9. If the targeted operating income was $2,500.000 what needs to be the dollars sales volume?
10. To improve the operating income what product /products would you try to sell more of. Explain clearly why. Show also calculations to prove your reasoning.