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Problem - The Rocky Mountain Catering Company specializes in preparing Mexican dinners that if freezes and ships to restaurants in the Denver area. When a diner orders an item, the restaurant heats and serves it. The budget data for the current year are given in the table below:

Product

Chicken Tacos Beef Enchiladas

Selling price to restaurants $ 5 $ 7

Variable cost $ 3 $ 4

Number of units to be sold 250,000 125,000

The company prepares the items in the same kitchens, delivers them in the same trucks, and so forth. Therefore, decisions about the individual products do not affect the fixed costs of $735,000 per year.

a. Compute the planned net income for the current year.

b. Compute the break-even point in units, assuming that the company maintains its planned sales mix. Use the sales mix in terms of planned sales units (i.e. use the Weighted Average Contribution Margin method).

c. Compute the break-even point in sales dollars, assuming that the company maintains its planned sales mix. Use the sales mix in terms of planned sales dollars (i.e. use the Weighted Contribution Margin Ratio method). Verify that your answer is consistent with the answer in (b).

d. Suppose the company sells 78,750 units of enchiladas and 236,250 units of tacos, for a total of 315,000 units. Compute the net income. Compute the new breakeven point with this new sales mix. What can you conclude when you compare with results in (b)?

Accounting Basics, Accounting

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