ironjay inc produces two types of weight training equipment 274519

Ironjay, Inc., produces two types of weight training equipment: the jay flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the jay flex to sporting goods stores for $200. The free weights sell for $75 per set. The projected income statement for the coming year follows:

Sales ……………………….$600,000

Less: Variable expenses …….390,000

Contribution margin ………$210,000

Less: Fixed expenses ……….157,500

Operating income ………….$ 52,500

The owner of Ironjay estimates that 40 percent of the sales revenues will be produced by sales of the jay flex, with the remaining 60 percent by free weights. The jay flex is also responsible for 40 percent of the variable expenses. Of the fixed expenses, one third are common to both products, and one half are directly traceable to the jay flex line.

Required:

1. Compute the sales revenue that must be earned for Ironjay to break even.

2. Compute the number of jay flex machines and free weight sets that must be sold for Ironjay to break even.

3. Compute the degree of operating leverage for Ironjay. Now, assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume?

4. Ironjay is considering adding a new product—the jay rider. The jay rider is a cross between a rowing machine and a stationary bicycle (like the Nordic rider?c). For the first year, Ironjay estimates that the jay rider will cannibalize 600 units of sales from the jay flex. Sales of free weight sets will remain unchanged. The jay rider will sell for $180 and have variable costs of $140. The increase in fixed costs to support manufacture of this product is $5,700. Compute the number of jay flex machines, free weight sets, and jay riders that must be sold for Ironjay to break even. For the coming year, is the addition of the jay rider a good idea? Why or why not? Why might Ironjay choose to add the jay rider anyway?