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Exercise 20.4 Computing the Break-Even Point (LO20-4, LO20-5, LO20-6) Malibu Corporation has monthly fixed costs of...

Exercise 20.4 Computing the Break-Even Point (LO20-4, LO20-5, LO20-6)

Malibu Corporation has monthly fixed costs of $56,000. It sells two products for which it has provided the following information:
Sales Price Contribution Margin
  Product 1 $15         $9              
  Product 2 20         4            
a.

What total monthly sales revenue is required to break even if the relative sales mix is 30 percent for Product 1 and 70 percent for Product 2? (Round your answer to the nearest dollar amount.)

b.

What total monthly sales revenue is required to earn a monthly operating income of $16,000 if the relative sales mix is 20 percent for Product 1 and 80 percent for Product 2? (Round your answer to the nearest dollar amount.)

Solutions

Expert Solution

Requirement a

Working

Product 1

Product 2

TOTAL

A

Revenues

$    15.00

$        20.00

B

Variable Cost

$      6.00

$        16.00

C = A - B

Contribution Margin

$      9.00

$           4.00

D

Product Mix

30.00%

70.00%

100.00%

E = C x D

Weighted Average Contribution Margin

$      2.70

$           2.80

$                   5.50

CM ratio

60%

20%

Weighted Average Contribution Margin Ratio

$      1.62

$           0.56

$                   2.18

A

Total Fixed Cost

$ 56,000.00

B

Weighted Average Contribution Margin

$             2.18

C = A/B

Multi Product Break Even point

            25,688

C x 30%

Product 1

              7,706

C x 70%

Product 2

            17,982

Product 1

Product 2

Total

Units

                  7,706

                  17,982

Selling price

$              15.00

$                 20.00

Total sales revenue

$          115,596

$            359,633

$          475,229

Requirement b

Working

Product 1

Product 2

TOTAL

A

Revenues

$           15.00

$        20.00

B

Variable Cost

$             6.00

$        16.00

C = A - B

Contribution Margin

$             9.00

$           4.00

D

Product Mix

20.00%

80.00%

100.00%

E = C x D

Weighted Average Contribution Margin

$             1.80

$           3.20

$     5.00

CM ratio

60%

20%

Weighted Average Contribution Margin Ratio

$             1.08

$           0.64

$     1.72

A

Total Fixed Cost + profit required

$ 72,000.00

B

Weighted Average Contribution Margin

$             1.72

C = A/B

Multi Product Break Even point

            41,860

C x 20%

Product 1

              8,372

C x 80%

Product 2

            33,488

Product 1

Product 2

Total

Units

                  8,372

        33,488

Selling price

$              15.00

$       20.00

Total sales revenue

$          125,581

$ 669,767

$ 795,349

ekkarill92 answered 2 years ago
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