Question

Therrell Corporation has two divisions: Bulb Division and Seed Division. The following report is for the most recent operating period: Bulb Division Seed Division Sales $ 310,500 $ 207,000 Variable expenses $ 80,730 $ 43,470 Traceable fixed expenses $ 128,800 $ 93,150 Common fixed expense $ 29,220 $ 19,480 The common fixed expenses have been allocated to the divisions on the basis of sales. Required: a. What is the Bulb Division’s break-even in sales dollars? b. What is the Seed Division’s break-even in sales dollars? c. What is the company’s overall break-even in sales dollars?

Answer 1

Contribution margin = Sales - Variable expenses

Contribution margin ratio = Contribution margin / Sales

	Bulb Division	Seed Division
Sales	$310,500	$207,000
Variable expenses	$80,730	$43,470
Contribution margin	$229,770	$163,530
Contribution margin ratio	0.74	0.79
Sales mix	0.6 ($310,500/$517,500)	0.4 ($207,000/$517,500)

a.

Bulb Division’s break-even in sales dollars = Traceable fixed expenses / Contribution margin ratio

= $128,800 / 0.74

= $174,054

b.

Seed Division’s break-even in sales dollars = Traceable fixed expenses / Contribution margin ratio

= $93,150 / 0.79

= $117,911

c.

Weighted average contribution margin ratio = (Bulb Division Contribution margin ratio * Sales mix) + (Seed Division Contribution margin ratio * Sales mix)

= (0.74 * 0.6) + (0.79 * 0.4)

= 0.444 + 0.316

= 0.76

Total fixed expenses = $128,800 + $93,150 + $29,220 + $19,480

= $270,650

Overall break-even in sales dollars = Total fixed expenses / Weighted average contribution margin ratio

= $270,650 / 0.76

= $356,118