Question

Multiple Product Break-Even Analysis
Presented is information for Stafford Company's three products.

	A	B	C
Unit selling price	$6	$8	$8
Unit variable costs	(4)	(5)	(3)
Unit contribution margin	$2	$3	$5

With monthly fixed costs of $143,000, the company sells two units of A for each unit of B and three units of B for each unit of C.

Determine the unit sales of product A at the monthly break-even point.
Answer

units

Answer 1

Sales mix A : B : C = 6 : 3 : 1

Weighted average contribution margin ratio = (Product A contribution margin*Sales mix) + (Product B contribution margin*Sales mix) + (Product C contribution margin*Sales mix)

= ($2 * 60%) + ($3 * 30%) + ($5 * 10%)

= $1.2 + $0.9 + $0.5

= $2.6

Break-even units = Fixed costs / Weighted average contribution margin ratio

= $143,000 / $2.6

= 55,000

Unit sales of product A at the monthly break-even point = 55,000 * 60% = 33,000