Question

Sales Mix and Break-Even Sales

Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are as follows:

Products	Unit Selling Price		Unit Variable Cost		Sales Mix
Laptops	$1,600		$800		40%
Tablets	850		350		60%

The estimated fixed costs for the current year are $2,498,600.

Required:

1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year.
units

2. Based on the break-even sales (units) in part (1), determine the unit sales of both laptops and tablets for the current year.

Laptops	units
Tablets	units

3. Assume that the sales mix was 50% laptops and 50% tablets. Compare the break-even point with that in part (1). Why is it so different?
units

The break-even point is   in this scenario than in part (1) because the sales mix is   toward the product with the higher   of product.

Answer 1

Ans:

1.

Calculation of break even point:

Contribution = selling price - variable cost.

Contribution For Laptops = $1,600-$800 = $800

Contribution For Tablets = $850 - $350 = $500

Sale Mix :

Latops = 40%

Tablets = 60%

Contribution for products per unit using sale mix = $800*40% + $500*60% = $620 per unit.

Fixed cost = $2,498,600

Break even sales = Fixed costs / Contribution = $2,498,600/620 = 4,030 Units

2.

Based on break even sales units, Unit sales for laptops and Tablets using sale mix is:

Laptops = 4,030*40% = 1,612 units

Tablets = 4,030*60% = 2,418 units

3.

If sale mix was 50% each.

Than:

Contribution For Laptops = $1,600-$800 = $800

Contribution For Tablets = $850 - $350 = $500

Sale Mix :

Latops = 50%

Tablets = 50%

Contribution for products per unit using sale mix = $800*50% + $500*50% = $650 per unit.

Fixed cost = $2,498,600

Break even sales = Fixed costs / Contribution = $2,498,600/650 = 3,844 Units

We can see that breakeven sales units are reduced by 186 units (4030-3844), becuase of change is sale mix. Sales of laptops has increased by 10% which has more contribution margin per unit than Tablets. So by increasing the sale of laptops required lessor number of sales per unit than tablet to reach to break even point.