Mountain Maples’ fixed costs for the most recent year were $75,000 — mail-order nursery dedicated growing selling and shipping beautiful Japanese Maple trees Located

Mountain Maples is a mail-order nursery dedicated to growing, selling, and shipping beautiful Japanese Maple trees. Located on a ridge-top in Mendocino County, northern California, Mountain

Maples offers two distinctive types of Japanese Maples: Butterfly and Moonfire. The trees are sold after five growing seasons, and revenue and cost data for each tree type (for the most recent year) are as follows:

.:.

Mountain Maples’ fixed costs for the most recent year were $75,000.

Required:

a. How many Japanese Maples must Mountain Maples sell in a year to break even? At this sales volume, how many Butterfly and Moon fire trees are sold?

b. At the current product mix, how many Butterfly trees must Mountain Maples sell in a year to earn a profit of $50,000?

c. Assume that Mountain Maples product mix changes to 50% Butterfly and 50% Moonfire. How does this information change your answer to part (a)?

SOLUTION:

Let us employ a weighted unit contribution margin approach to solve the problem. For Mountain Maples, we have:

2,400 total trees sold – 800, or 1/3 are Butterfly, and 1,600, or 2/3, are Moonfire. Thus, we have:

Weighted unit contribution margin = 1/3 $100 + 2/3 $50.

= $66.67.

In turn, Mountain Maples’ profit becomes:

Profit before taxes = ($66.67 total number of trees sold) – $75,000.

At the breakeven point, we have: $0 = ($66.67 Breakeven number of trees) – $75,000.