Question

Sales Mix and Break-Even Analysis Hughes Company has fixed costs of $3,565,000. 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 Model 94 $1,600 $960 $640 Model B1 1,000 800 200 The sales mix for products Model 94 and Model 81 is 25% and 75%, respectively. Determine the break even point in units of Model 94 and Model 81 of the overall (total) product a. Product Model 94 units b. Product Model 81 units

Answer 1

Solution:

The break - even point in units of Model 94 and Model 81 of the overall (total) product:

Fixed costs	$3,565,000
Contribution margin per unit for Model 94	$640
Contribution margin per unit for Model 81	$200
Sales percentage of Model 94	25%
Sales percentage of Model 81	75%

Weighted Contribution = Sales Mix (Model 94)× Contribution margin (Model 94) + Sales Mix(Model 81) × Contribution margin (Model 81)

Weighted contribution = 25% × $640 + 75% × 200

=$160 + $150

=$310

Break even level of units = Fixed cost / Weighted contribution

=$3,565,000 / $310

Number of units to be sold for break even for Model 94 = Overall break even level of units × Sales mix (Model 94)

=11,500 ×25%

=2,875 units

Number of units to be sold for break even for Model 84 =Overall break even level of units × Sales mix (Model 81)

=11,500 ×75%

=8,625

Model 94	2,875	Units
Model 81	8,625	Units