Pete's Pet Products is a sole proprietorship owned by Pete Thompson. The store provides a full-line of pet products, including food, grooming materials, toys, leashes, etc. The company also sells hand-made pet houses, including dog houses, bird cages, and cat castles. Each of the pet houses is being evaluated in terms of cost-volume-profit. See the relevant information below:
|
Dog house |
Bird cage |
Cat castle |
| Sales Price |
$140 |
$95 |
$160 |
| Variable cost |
$65 |
$34 |
$56 |
| Fixed monthly cost |
30% |
25% |
45% |
When Pete uses a distributor to sell additional pet houses, he has to pay a sales commission of 8% of the sales price. On average, he sells 60% of each pet house through distributors. The fixed costs (shown above) are based on estimated design time for each product. Pete's store averages $32,000 of fixed costs per month.
- Calculate the contribution margin for each pet house. Ignore the sales commission for this computation.
- Calculate the monthly break-even units for each pet house. Ignore the sales commission for this computation.