Pete’s Pet Products is a sole proprietorship owned by Pete Thompson. The store provides a full line of pet products, including food, grooming materials, toys, leashes, etc. The company also sells hand made pet houses, including dog houses, bird cages, and cat castles. Each of the pet houses is being evaluated in terms of cost volume profit. See the relevant information below:
| Dog house | Bird cage | Cat castle | |
| Sales Price | $140 | $95 | $160 |
| Variable cost | $65 | $34 | $56 |
| Fixed monthly cost | 30% | 25% | 45% |
When Pete uses a distributor to sell additional pet houses, he has to pay a sales commission of 8% of the sales price. On average, he sells 60% of each pet house through distributors. The fixed costs (shown above) are based on estimated design time for each product. Pete’s store averages $32,000 of fixed costs per month.
- Calculate the contribution margin for each pet house. Ignore the sales commission for this computation.
- Calculate the monthly break even units for each pet house. Ignore the sales commission for this computation.