Question

Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $5 and has a sales price of $9. The high-end model costs $9 and sales for $15. Fixed costs associated with this product line amount to $35,880. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the break-even point for the high-end clippers?

What I have so far: Weighted Contribution Margin = $2.30 ($1.40 for economy + $0.90 for high-end), and 15,600 combined Break-even point (35880/2.30). I take 30% of 15,600 to presumably get the break-even point for high-end clippers, but my answer, 4680 units, is incorrect.

Answer 1

	Economy Clipper	High-end Clipper	Total
Sales price per unit	9	15
Variable cost per unit	5	9
Contribution margin per unit	4	6
Sales mix	7	3	10
Total contribution margin	28	18	46
Weighted average contribution margin ($46/10)			4.60

Break-even point in units = Total Fixed costs/Weighted average contribution margin per unit = $35880/$4.60 = 7800 units

Break-even point in units for High-end clippers = 7800 units x 30% = 2340 units