If Company A’s selling price of its product is $1,000, variable cost is 80% of the...

If Company A’s selling price of its product is $1,000, variable cost is 80% of the selling price, and fixed cost is $100,000. What will be the total sales in dollars and units for the company to break even? Also, what is sales mix and what role does contribution margin play when a company is evaluating it’s sales mix?

Expert Solution

Contribution Margin per unit = Sales price per unit - Variable costs per unit

= 1000 - (1000*80%) = 200

Contribution margin ratio = 100% - Variable cost ratio = 100% - 80% = 20%

Sales dollars needed to breakeven = Fixed cost/Contribution margin ratio

= 100,000/20%

= $500,000

Units needed to Breakeven = Fixed cost/Contribution margin per unit

= 100,000/200

= 500 units

Sales mix is the relative proportion of each product's sales to the total sales.

ekkarill92 answered 2 years ago

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