Question

Break-Even with Multiple Products We Scream For Ice Cream sells ice cream in three flavors: Chocolate, Strawberry, and Vanilla. It sold 28,000 gallons last year, but it is still losing money. For every five gallons of ice cream sold, one gallon is Strawberry and the remainder is split evenly between Chocolate and Vanilla. Fixed costs for We Scream For Ice Cream are $48,174 and additional information follows: Chocolate Vanilla Strawberry Sales price per gallon $5.15 $5.15 $5.15 Variable cost per gallon $2.65 $3.65 $3.85 Before answering the questions below, compute the following for each flavor: Chocolate Vanilla Strawberry Contribution margin $ Sales mix (%) % Weighted avg. CM $ $ a. Assuming the sales mix remains constant, how many total gallons of ice cream must be sold to break even? b. How many gallons of strawberry ice cream will be sold at the break-even point? c. What will total revenue equal at the break-even point?

Answer 1

	Sales price per gallon			5.15	5.15	5.15
	Variable cost per gallon			2.65	3.65	3.85
	contribution margin per gallon			2.5	1.5	1.3
	Sales mix %			40%	40%	20%
	weighted average CM			1	0.6	0.26	1.86
a)	25900		(48,174/1.86)
b)	5180		(25900*20%)
c)	48,174