Question

Scenario

Media Wise sells a range of media products in package deals. The products sold within bundles are as follows.  

	TV	Stand	Speaker
Selling Price (£)	400	50	40
Variable Cost (£)	250	30	25

Package A consists of a TV and a stand and is sold for a discounted price of £420. Package B consists of a TV, a stand and two speakers and is sold for a discounted price of £480. Currently packages are sold in a ratio of 2 Package As for every 3 Package Bs and 600 packages are sold each month. Fixed costs are expected to be £82,000 for the month.  

Question 2

1. Calculate the break even point (in number of packages and sales revenue)
   1. If only Package As are sold                                                                
   2. If only Package Bs are sold                                                                
   3. If both packages are sold in the current sales mix, calculate the breakeven point per mix first, the unit for each product and the total units.   

                      

Answer 1

Package A contribution = Selling price - Variable cost i.e. 420-(250+30) or 140 per package

Package B contribution = Selling price - Variable cost i.e. 480-(250+30+50) or 150 per package

PT a Break even point = Fixed cost/Contribution i.e. 82000/140 or 585.71 unit

Break even point in revenue = 585.71*420 or $245998.20

PT b Break even point = Fixed cost/Contribution i.e. 82000/150 or 546.67 unit

Break even point in revenue = 546.67*480 or $262401.60

Pt c Let 2x be unit sold for A and 3x for B

Total contribution from both =2X*140+ 3X*150 or 730X

730X must be equal to fixed cost for break even.

i.e. 730X =82000

X =112.328X

A =2*112.328 i.e 224.656

B =3*112.328 i.e. 336.984

Break even point in revenue A = 224.656*420 i.e. $ 94355.52

Break even point in revenue B =336.984*480 i.e. $ 161752.32

Unit for Each product -

TC = (224.656+336.984)*1 i.e. 561.64 unit

Stand =(224.656+336.984) *1 i.e. 561.64 units

Speaker =336.984 *2 i.e. i.e.673.968 units