Question

Hello, can someone please show me how to solve this. I could not find an easy to follow example in my textbook. Thanks a ton!

Multiple-Product Break-even, Break-Even Sales Revenue Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows: DVDs Equipment Sets Price $8 $25 Variable cost per unit 15 Total fixed cost is $89,780. Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $20 and a variable cost per unit of $12. Total fixed cost must be increased by $29,920 (making total fixed cost $119,700). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Answer 1

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Equipment Sets Yoga Mat Particulars DVD Sales Price Variable Price Contribution margin Fixed Cost 8 25 20 4 15 12 4 10 8 119700 Sales unit 1) So Sales Mix Ratio is 135 : 45: 90 i.e. 3:1:2 13500 4500 9000 (2+1.67+2.67) 2 1.666666667 2.66666667 6.3 Calculating Weighted Average (4/6)*3 (10/6)*1 (8/6)2 2) Contribution Margin based on Sales Mix Breakeven Point in units Fixed Cost /Weighted Contribution Margin Percentage of sales Mix Particulars Fixed Cost Equipment Sets Yoga Mat DVD 119700 119700 119700 Weighted Average Contribution Margin Percentage of sales Mix (3 1: 2) Breakeven Point in units Fixed Cost / Weighted Contribution Margin Percentage of sales Mix 6.3 6.3 6.3 16.67% 50% 33.33% 9500 3166.54 6333.46

Equipment Sets Yoga Mat 4500 Total DVD Sales unit Sales За) 13500 9000 108000 112500 180000 400500 Total Variable Cost 229500 67500 108000 54000 171000 (A) 72000 Contribution Margin 54000 45000 119700 (B) Fixed Cost 51300 (A-B) Operating income Equipment Sets Yoga Mat 4500 3b Total DVD Sales unit 13500 9000 Sales Total Variable Cost 112500 180000 108000 400500 54000 67500 108000 229500 Contribution Margin 45000 72000 171000 54000 Fixed Cost 119700 Overall contribution Margin Ratio ( 171000/400500) 0.43 (171000/400500) Overall Breakeven Sales Revenue 280350 (119700/.43) (119700/.43) Current sales level Breakeven point 4 Margin of safety 120150 400500-280350