Question

Sanburn Sporting Goods manufactures athletic and recreational equipment. Their unit sales and cost data for the year 2020 is shown here:

Pool cues Tennis rackets $ 50 40 Baseball bats $ 45 - 42 Lacrosse sticks $ 65 40 $ 25 15 Sales price / unit Variable costs / unit Contribution margin / unit Sales mix $ 10 $ 3 $ 10 $ 25 40% 30% 25% 5%

Sanburn expects their total fixed costs to be $125,425 in 2020.

REQUIRED:

1. Calculate Sanburn’s break-even point in units for the whole company.
2. Calculate Sanburn’s break-even point in units for each of their products.
3. Demonstrate that the sales quantities you found for each product in #2 will actually generate an overall net income of zero for Sanburn.

Answer 1

1)

Break-even point in units for the whole company = Total Fixed Cost / Weighted average contribution margin per unit

= $125,425 / [{40/100*$10} + {30/100*$3} + {25/100*$10} + {5/100*$25}]

= $125,425 / [$4 + $0.90 + $2.50 + $1.25]

= $125,425 / $8.65 per unit

= 14,500 units

Therefore, break-even point in units for the whole company is 14,500 units.

2)

Break-even point in units for each of their products:
Product Names	Sales Mix (a)	Company wide break-even point in units (b)	Product wise break-even point in units (a*b)
Tennis Rackets	40%	14,500	5,800
Baseball bats	30%	14,500	4,350
Pool cues	25%	14,500	3,625
Lacross sticks	5%	14,500	725
Total Company wide break-even point in units			14,500

3)

	Tennis Rackets	Baseball bats	Pool cues	Lacross sticks	Total
Units sold (a)	5,800	4,350	3,625	725	14,500
Selling price per unit (b)	$50	$45	$25	$65
Sales Units (a * b)	$290,000	$195,750	$90,625	$47,125	$623,500
Variable cost per unit (c )	$40	$42	$15	$40
Less: Variable costs (a * c)	$232,000	$182,700	$54,375	$29,000	$498,075
Contribution Margin	$58,000	$13,050	$36,250	$18,125	$125,425
Less: Fixed Costs					($125,425)
Net Income					$0
Therefore, the overall net income is zero.