Fidelity Multimedia sells audio and video equipment and car stereo products. After performing a
study of fixed and variable costs in the prior year, the company prepared a product-line profit
state as follows:
Fidelity Multimedia
Profitability Analysis
For the Year Ended December 31,2014
_Audio_________Video__________Car______Total
Sales
$3,250,000
$1,950,000
$1,300,000
$6,500,000
Less variable costs:
Cost of merchandise
1,920,000
1,374,000
617,000
3,911,000
Salary, part-time staff
192,5000
108,000
59,000
359,500
Total variable costs
2,112,500
1,482,000
676,000
4,270,500
Contribution margin
1,137,500
468,000
624,000
2,229,500
Less direct fixed costs:
Salary, full time staff
325,000
240,000
220,000
785,000
Total
$ 812,500
$ 228,000
$404,000
$1,444,500
Less common fixed costs:
Advertising
115,000
Utilities
25,000
Other administrative costs
570,000
Total common fixed costs
710,000
Profit
$734,500
a. Calculate the contribution margin ratios for the audio, video, and car product lines.
b. What would be the effect on profit of a $125,000 increase in sales of audio equipment compared with a $125,000 increase in sales of viedo equipment or a $125,000 increase in sales of car equipment? Based on this limited information, which product line would you reccomend expanding?
c. Calculate the break-even level of sales dollars for the company as a whole. (Round to the nearest dollar)
d. Caluculate sales needes to achieve a profit of $1,800,000, assuming the current mix. (Round to the nearest dollar)
e. Determine the sales of audio, video, and car products in the total sales amount calculated for part d. (Round to the nearest dollar)