Question

Sales Mix and Break-Even Sales

Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are as follows:

Products	Unit Selling Price		Unit Variable Cost		Sales Mix
Laptops	$1,600		$800		40%
Tablets	900		450		60%

The estimated fixed costs for the current year are $3,894,000.

Required:

1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year.
units

2. Based on the break-even sales (units) in part (1), determine the unit sales of both laptops and tablets for the current year.

Laptops	units
Tablets	units

3. Assume that the sales mix was 60% laptops and 40% tablets. Compare the breakeven point with that in part (1). Why is it so different?
units

The break-even point is   in this scenario than in part (1) because the sales mix is   toward the product with the higher   of product.

Answer 1

1. Sales :                          ($1,600 × 40%) + ($900 × 60%) = $1,180
Less: Variable cost             ($800× 40%) + ($450× 60%) =    $590
Unit contribution margin = $1180 – 530 = $590
Break-even sales = Fixed Costs / Unit Contribution Margin

Total Product break even sales in units = $3,894,000 / 590 = 6600 units

2. Break even sales in units Both Laptop and Tablet

Laptop (6600 x 40%) =2640 units
Tablet:(6600 x 60%) =3960 units

3. Let us compute unit contribution of both Laptop and Tablet each one together
Sales :                          ($1,600 × 60%) + ($900 × 40%) = $1320
Less: Variable cost             ($800× 60%) + ($550× 40%) = $700
Unit contribution margin = $1320 – 700 = $620
Break-even sales = Fixed Costs / Unit Contribution Margin

1.Total Product break even sales in units = $3,894,000 / 620 = 6280 units

2. Break even sales in units Both Laptop and Tablet

Laptop (6280 x 60%) = 3768 units
Tablet:(6280 x 40%) =2512 units

Break even changed due to change in sales mix which in turn changed the contribution.