Question

Sales Mix and Break-Even Analysis

Einhorn Company has fixed costs of $105,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company’s two products follow:

Product	Selling Price		Variable Cost per Unit			Contribution Margin per Unit
QQ	$50		$35			$15
ZZ	60		30			30

The sales mix for products QQ and ZZ is 40% and 60%, respectively. Determine the break-even point in units of QQ and ZZ.

a. Product QQ  units

b. Product ZZ  units

Answer 1

Contribution margin per unit of product QQ = $15

Contribution margin per unit of product ZZ = $30

The sales mix for products QQ and ZZ is 40% and 60%

Weighted contribution margin per unit = 15 x 40% + 30 x 60%

= 6 + 18

= $24

Combined Break even point = Fixed costs/Weighted contribution margin

= 105,000/24

= 4,375 units

Break even quantity of product QQ = 4,375 x 40%

= 1,750 units

Break even quantity of product ZZ = 4,375 x 60%

= 2,625 units

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