Pharoah Inc sells two types of water pitchers plastic and gl

Pharoah, Inc., sells two types of water pitchers, plastic and glass. Plastic pitchers cost the company $37 and are sold for $52. Glass pitchers cost $46 and are sold for $67. All other costs are fixed at $2,574,936 per year. Current sales plans call for 36,680 plastic pitchers and 110,040 glass pitchers to be sold in the coming year.

a) Pharoah, Inc., has just received a sales catalog from a new supplier that is offering plastic pitchers for $35. What would be the new contribution margin per unit if managers switched to the new supplier?

Plastic pitchers

Glass pitchers

b) What would be the new breakeven point if managers switched to the new supplier? (Use contribution margin per unit to calculate breakeven units. Round answers to 0 decimal places, e.g. 25,000.)

Plastic pitchers

Glass pitchers

		Plastic pitchers		Glass pitchers
Contribution margin per unit		$		$

Solution

Pharoah incorporation : Two types of water pitchers i.e., plastic and glass particulars plastic Glass Selling price 52 67 Cost 37 46 Fixed costs 2574936 Selling units 36680 110040 a) If pharoah inc. goes for new supplier, then Contribution margin per unit will be : (Amount in $) Particulars Plastic Glass Selling price 52 67 Less: Variable cost 35 46 Contribution Margin per unit 17 21 b) Break even point if pharoah inc switched to new supplier : Break even point is the point at which there is no profit or loss. The contribution generated by the product is just sufficient to cover the fixed cost. Let the break even sales be \"x\" Sales mix ratio of plastic : Glass 36680 110040 1 to 3 Therefore, break even (52-35)x + (67-46)3x - 2574936 = 0 17x+63x = 2574936 x = 2574936/80 32187 units Break even units x and 3x\' Plastic 32187 units Glass 96561 units