Question

Megan Company has fixed costs of $1,675,000. The unit selling price, variable cost per unit, and contribution margin per unit for the two company's follow:

Sales Mix and Break-Even Analysis Megan Company has fixed costs of $1,675,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow: Product Model Selling Price Variable Cost per Unit Contribution Margin per Unit Yankee $880 $440 $440 Zoro 620 480 The sales mix for products Yankee and Zoro is 65% and 35%, respectively. Determine the break-even point in units of Yankee and Zoro. a. Product Model Yankee units b. Product Model Zoro units

Answer 1

Answer:

Selling Price per unit of Overall Company = (Selling price per unit of Yankee * Sales Mix of Yankee) + (Selling price per unit of Zoro * Sales Mix of Zoro)
Selling Price per unit of Overall Company = ($880 * 65%) + ($620 * 35%)
Selling Price per unit of Overall Company = $572 + $217
Selling Price per unit of Overall Company =$789

Variable Cost per unit of Overall Company =(Variable Cost per unit of Yankee * Sales Mix of Yankee) + (Variable cost per unit of Zoro * Sales Mix of Zoro)
Variable Cost per unit of Overall Company = ($440 * 65%) + ($480 * 35%)
Variable Cost per unit of Overall Company = $286 + $168
Variable Cost per unit of Overall Company = $454

Contribution Margin per unit of Overall Company = Selling Price per unit of Overall Company - Variable Cost per unit of Overall Company
Contribution Margin per unit of Overall Company = $789 - $454
Contribution Margin per unit of Overall Company = $335

Break Even Point in Sales (Units) = Fixed Cost / Contribution Margin per unit of Overall Company
Break Even Point in Sales (Units) = $1,675,000 / $335
Break Even Point in Sales Units = 5,000 unit

Part a:

Break Even Point in Units (Yankee) = Break Even Point in Sales unit * Sales Mix of Yankee
Break Even Point in Units (Yankee) = 5,000 units * 65%
Break Even Point in Units (Yankee) = 3,250 units

Part b:

Break Even Point in Units (Zoro) = Break Even Point in Sales unit * Sales Mix of Zoro
Break Even Point in Units (Zoro) = 5,000 units * 35%
Break Even Point in Units (Zoro) = 1,750 units