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Part 1
KrisKris
AndersonAnderson
admired his friend
LennyLenny
ArkinArkin's
success at selling scarves at local crafts shows, so he decided to make two types of plant stands to sell at the shows.
KrisKris
makes twig stands out of downed wood from his backyard and the yards of his neighbors, so his variable cost is minimal (wood screws, glue, and so forth). However,
KrisKris
has to purchase wood to make his oak plant stands. His unit prices and costs are as follows:
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The twig stands are more popular, so
KrisKris
sells four twig stands for every one oak stand.
LennyLenny
charges her friend
$ 240$240
to share her booth at the craft shows (after all, she has paid the entrance fees). How many of each plant stand does
KrisKris
need to sell to break even? Will this affect the number of scarves
LennyLenny
needs to sell to break even? Explain.
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Part 1
Determine how many of each plant stand
KrisKris
needs to sell to breakeven. Begin by computing the weighted-average contribution margin per unit. First identify the formula labels, then complete the calculations step by step.
Twig
Oak
Total
Less:
Weighted average contribution margin per unit
Part 2
Next determine the formula to compute the breakeven sales in units. (Abbreviations used: Avg. = average and CM = contribution margin.)
(
+
) ÷
=
Breakeven sales in units
Part 3
Determine how many of each plant stands
KrisKris
needs to sell to breakeven.
Breakeven sales of twig stands is
units.
Breakeven sales of oak stands is
units.
Part 4
Will this affect the number of scarves
LennyLenny
needs to sell to breakeven? Explain.
By charging her husband part of the craft fair entrance fees, her fixed costs will
â–¼
decrease
increase
not change
.
Therefore,
LennyLenny
will need to sell
â–¼
fewer
more
the same amount of
scarves to breakeven than before her husband decided to share her craft booths.