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Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Target Operating Income

Basu Company produces two types of sleds for playing in the snow: basic sled and aerosled. The projected income for the coming year, segmented by product line, follows:

	Basic Sled		Aerosled		Total
Sales	$3,000,000		$2,400,000		$5,400,000
Total variable cost	1,000,000		1,000,000		2,000,000
Contribution margin	$2,000,000		$1,400,000		$3,400,000
Direct fixed cost	778,000		650,000		1,428,000
Product margin	$1,222,000		$750,000		$1,972,000
Common fixed cost					198,900
Operating income					$1,773,100

The selling prices are $30 for the basic sled and $60 for the aerosled. (Round break-even packages and break-even units to the nearest whole unit.)

Required:

1. Compute the number of units of each product that must be sold for Basu to break even.

Basic ____ (in units)
Aero ____ (in units)

2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is five basic sleds to three aerosleds. Compute the number of units of each product that must be sold for Basu to break even. Round your answers to the nearest whole number.

Basic ____ (in units)
Aero ____ (in units)

3. Conceptual Connection: Refer to the original data. Suppose that Basu can increase the sales of aerosleds with increased advertising. The extra advertising would cost an additional $195,000, and some of the potential purchasers of basic sleds would switch to aerosleds. In total, sales of aerosleds would increase by 12,000 units, and sales of basic sleds would decrease by 5,000 units. Would Basu be better off with this strategy? If so, give the amount of increase in income. ___ $

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