Question

X company has the following information concerning the 2 products that it sells.

		Product 1		Product 2
Sales Price per unit		$800		$300
Variable cost per unit		$500		$200

The company sells 12 units of Product 2 for each unit of Product 1 that it sells. How many units of Product 2 must it sell to breakeven if fixed costs total $75,000?

Answer 1

Break even point in dollar sales = Fixed Expenses / Contribution Margin % for the company
Contribution Margin % for the company = Total Contribution Margin / Total sales
	Product 1	Product 2	Total
Sales	$800.00	$3,600.00	$4,400.00
less : Variable cost	$500.00	$2,400.00	$2,900.00
Total Contribution Margin			$1,500.00
Contribution Margin % for the company = $1500 / $4400 = 34.09%
Break even point in dollar sales = $75000 / 34.09% = $2,20,000
Dollar Sales mix ratio = Product 1 : Product 2 = $800 : $3600 = 2:9
Divide the break even dollar sales using above sales mix ratio and then divide individual
product dollar sales by their per unit sales price to get break even units for each product.
Break even dollar sales for Product 2 = ($2,20,000 / 11) x 9 = $1,80,000
Number of units of Product 2 must be sold to break even = $1,80,000 / $300 = 600 units