Question

PR 21-5B Sales mix and break-even sales Obj. 5 Data related to the expected sales of two types of frozen pizzas for Norfolk Frozen Foods Inc. for the current year, which is typical of recent years, are as follows: Unit Variable Cost Products 12" Pizza 16* Pizza Unit Selling Price $12 15 Sales Mix 3096 70% 15 The estimated fixed costs for the current year are $46,800. Is for Instructions 1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year Answer + 2. Based on the break-even sales (units) in part (1), determine the unit sales of both the 12" pizza and 16" pizza for the current year.33333333 Assume that the sales mix was 50% 12" pizza and 50% 16" pizza. Compare the break-even point with that in part (1). Why is it so different?

Answer 1

Step 1: Calculate the contribution margin per unit for each product:

Product	12 pizza	16 Pizza
Sales Price per Unit	12	15
− Variable Cost per Unit	3	4
Contribution Margin per Unit	$ 9	$11

Step 2: Calculate the weighted-average contribution margin per unit for the sales mix using the following formula:

Product 12 Pizza CM per Unit × Product 12’pizza Sales Mix Percentage
+ Product 16’ pizza CM per Unit × Product 16’ pizza Sales Mix Percentage
= Weighted Average Unit Contribution Margin

Product 12 pizza 16 Pizza Sales Price per Unit 12 15 − Variable Cost per Unit 3 4 Contribution Margin per Unit 9 11 × Sales Mix Percentage 30% 70% $2.7 $7.7

Weighted Avg CM per unit =   2.7+7.7   = 10.4

Step 3: Calculate total units of sales mix required to break-even using the formula:

Break-even Point in Units of Sales Mix = Total Fixed Cost ÷ Weighted Average CM per Unit

                                                = 46800/10.4

                                                 = 4500 units in sales mix

Problem-2

     Unit sales of

                    12 pizza = ( sales mix * break even units )

                                   = 4500*30% = 1350

                 16 pizza =   4500*70%

                       = 3150

Problem - 3

Calculate the weighted-average contribution margin per unit for the new sales mix using the following formula:

Product 12 Pizza CM per Unit × Product 12’pizza Sales Mix Percentage
+ Product 16’ pizza CM per Unit × Product 16’ pizza Sales Mix Percentage
= Weighted Average Unit Contribution Margin

Product 12 pizza 16 Pizza Sales Price per Unit 12 15 − Variable Cost per Unit 3 4 Contribution Margin per Unit 9 11 × Sales Mix Percentage 50% 50% 4.5 5.5

Weighted Avg CM per unit =   5.5+4.5 = 10

Step 3: Calculate total units of sales mix required to break-even using the formula:

Break-even Point in Units of Sales Mix = Total Fixed Cost ÷ Weighted Average CM per Unit

                                                = 46800/10

                                                 = 4680 units in sales mix

Break even in units sales mix different from the part 1 because Contribution margin from each product is different as a result change in sales mix always there is a change in break even units

If the sale of a product with highest contribution increases no of units for break even is decreases

in the above pizza 12 has less contribution so break even units increased in 2nd scenario