Question 9 11 out of 11 points the doggy palace is an

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Question 9 11 out of 11 points The Doggy Palace is an upscale grooming salon for dogs. Doggy Palace sells two types of doggy shampoo. Shiny Coat sells for \$20 per bottle and Flea-B-Gone sells for \$10 per bottle. Fixed costs total \$20,000. Additional cost data is as follows: Shiny Coat Flea-B-Gone Price per bottle \$20 \$10 Unit variable cost \$10 \$ 5 Sales volume (# of units) 1,600 3,200 Required: How many bottles of Shiny Coat and Flea-B-Gone must The Doggy Palace sell in a year to break even? At the current product mix, how many bottles of Shiny Coat and Flea- B-Gone must The Doggy Palace sell in a year in order to earn a profit of \$25,000 before taxes? What is the margin of safety for Doggy Palace now? What is the operating leverage for Doggy Palace now? (4 + 4 + 1.5 + 1.5 = 11 points; suggested time = 25 minutes)
\$20,000/\$6.667 = 3,000 units Shiny Coat Units = (1/3)*3000 = 1000 Flea-B = (2/3)*3000 = 2000 b) 25000 = 6.67x+20000 Units Required,x = (20000+250000)/6.667 = 6750 units Shiny Coat Units = (1/3)*6750 = 2250 Flea-B = (2/3)*6750 = 4500 c) Break Even Revenue = Shiny Coat revenue (1000*20) + Flea-B revenue (2000*10) = 40,000 Revenue = Shiny Coat (1600*20) + Flea-B (3200*10) = 64,000 Margin of safety= (64000-40000)/64000 = 0.375 ie. 37.5% d) Total Variable Cost = (1600*10)+(3200 * 5) = 16000 + 16000 = 32,000 (Shiny coat + Flea-B) Fixed Cost = 20,000 Operating Leverage = 20,000/(20,000 + 32,000) = 0.385 ie. 38.5% Correct Answer: Feedback: Shiny Coat Flea-B- Gone Price per bottle \$20 \$10 Unit variable cost \$10 \$ 5 Unit contribution margin \$10 5 Sales volume 1,600 3,200 Sales mix is 1,600:3,200 = 1:2. Weighted average contribution = (1/3 x \$10) + (2/3 x \$5) = \$6.6667 e. At breakeven volume, the contribution margin equals the fixed cost of \$20,000 è At the break even volume of X, \$6.667X = \$20,000 Solve for X as \$20,000/\$6.667 = 3,000 units è The company must sell 3,000 bottles in total in order to breakeven. Now, break down the breakeven volume of 3,000 in to bottles of Shiny Coat and bottles of Flea-B-gone that need to be sold to break even based on the assumed sales mix. 3,000 units x 1/3 = 1,000 units of Shiny Coat 3,000 units x 2/3 = 2,000 units of Flea-B-Gone b.We need a total contribution of \$20,000 + 25,000 = \$45,000 to make a profit of \$25,000 before taxes. Sales volume required to raise a contribution of \$45,000 = \$45,000 ÷ \$6.6667 = 6,750 units 6,750 units x 1/3 = 2,250 units of Shiny Coat 6,750 units x 2/3 = 4,500 units of Flea-B-Gone c. The sales revenue NOW = 1,600(\$20) + 3,200(\$10) = \$32,000 + \$32,000 = \$64,000. Breakeven revenue = 1,000 (\$20) + 2,000(\$10) = \$
40,000. Margin of Safety = (\$64,000 – 40,000)/\$64,000 = 37.5% d. Fixed costs now = \$20,000. Variable costs now = 1,600(\$10) + 3,200(\$5) = \$32,000. Total costs = \$52,000. Operating leverage = \$20,000/\$52,000 = 0.3846 Response Feedback : [None Given]
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