Question

Dixie Candle Supply makes candles. The sales mix (as a percentage of total dollar sales) of its three product lines is birthday candles 30%, standard tapered candles 55%, and large scented candles 15%. The contribution margin ratio of each candle type is shown below.

Candle Type		Contribution Margin Ratio
Birthday		20%
Standard tapered		30%
Large scented		50%

If the company’s fixed costs are $457,500 per year, what is the dollar amount of each type of candle that must be sold to break even?

Answer 1

Weighted contribution margin ratio = 20% x 0.3 + 30% x 0.55 + 50% x 0.15

= 6% + 16.5% + 7.5%

= 30%

Break even Dollar sales = Fixed costs/Weighted contribution margin ratio

= 457,500/30%

= $1,525,000

Break even sales of Birthday candles = 1,525,000 x 30%

= $457,500

Break even sales of Standard tapered candles = 1,525,000 x 55%

= $838,750

Break even sales of Large scented candles = 1,525,000 x 15%

= $228,750

Kindly comment if you need further assistance. Thanks