Question

Changes in Sales Mix. Hi-Tech Incorporated produces two different products with the following monthly data (these data are the same as the previous exercise).

	Cell	GPS	Total
Selling price per unit	$100	$400
Variable cost per unit	$  40	$240
Expected unit sales	21,000	9,000	30,000
Sales mix	70 percent	30 percent	100 percent
Fixed costs			$1,800,000

Required:

If the sales mix shifts to 50 percent Cell and 50 percent GPS, would the break-even point in units increase or decrease? Explain. (Detailed calculations are not necessary but may be helpful in confirming your answer.)

Go back to the original projected sales mix. If the sales mix shifts to 80 percent Cell and 20 percent GPS, would the break-even point in units increase or decrease? Explain. (Detailed calculations are not necessary but may be helpful in confirming your answer.)

Answer 1

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	Cell	GPS
Selling price per unit	$       100	$       400
Variable cost per unit	$          40	$       240
Contribution Per Unit	$          60	$       160
Since Contribution per unit for GPS is high, more the GPS in sales mix, BEP in units will be lesser
	Cell	GPS
Existing Sales Mix	70%	30%
New One	50%	50%
Since GPS portion has increased, BEP in units will decrease.
New One	80%	20%
Since GPS portion has decreased from 30 to 20, BEP in units will increase.