Question

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 8,900 DVDs and 4,450 equipment sets. Information on the two products is as follows:

   DVDs    Equipment Sets

Price    $7.80    $25.40

Variable cost per unit    $3.60 $15.40

Total fixed cost is $60,720.

Required:

1. What is the sales mix of DVDs and equipment sets?

2. Compute the break-even quantity of each product.

Answer 1

Answer:-1)- Sales mix percentage = DVD = (8900 units/13350 units)*100 =66.67%

Basic Television Set = (4450 units/$13350 units)*100 =33.33%

2)-Total break even point in units:-

DVD = 6604 units

Basic Television Set =3301 units

Explanation- Contribution margin per unit- DVD = $7.80 per unit-$3.60 per unit

= $4.20 per unit

Basic Television Set = $25.40 per unit-$15.40 per unit

= $10 per unit

Weighted average contribution margin per unit =Contribution margin per unit* Sales mix percentage

= ($4.20*66.67%)+($10*33.33%)

= $2.80+$3.33                                                

= $6.13 per unit

Company’s Break even point in units= Fixed costs/ Weighted average contribution margin ratio

= $60720/$6.13 per unit

= 9905 units

Total break even point in units:-

DVD =9905 units*66.67% = 6604 units

Basic Television Set = 9905 units*33.33% = 3301 units