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Express Delivery is a rapidly growing delivery service
Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 20% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which provides a 70% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $12,747,000.
(a) What is the company's break-even point in total sales dollars? At the break-even point, how much of the company's safes are provided by each type of service?
(b) The company's management would like remainder from pouches and small boxes. If this were to occur, what would be the company's break-even sales, and what amount of sales would be provided by each service type
Expert Solution
a)
To cover the fixed cost, company needs to earn $12747000 in contribution margin:
Computation of sales
(80% X 20%)*Sales + (20% X 70%)*Sales = $12747000
= 16%*Sales + 14%*Sales = $12747000
=30%* Sales = $12747000
Sales = $12747000/ 30%
= $42490000
Sales from mail pouches and small boxes;
= $42490000 X 80%
= $ 33992000
Sales from non standardized boxes;
= $42490000 X 20%
= $ 8498000
2.)
Computation of total sales;
(40% X 20%)*Sales + (60% X 70%)*Sales = $12,747000
= 8%* Sales + 42%* S = $12,747000
=50%* Sales = $12,747000
S = $12,747000/ 50%
= $ 25494000
Sales from mail pouches and small boxes;
= $ 25494000 X 40%
= $ 15296400
Sales from non standardized boxes;
= $ 25494000 X 60%
= $ 10197600
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