Question
In: Accounting
49. The sales mix percentages for Bonita’s Boston and Seattle Divisions are 70% and 30%. The...
49. The sales mix percentages for Bonita’s Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are $2867500. What is Bonita’s break-even point in dollars?
a) $1003625.
b) $7750000.
c) $8192857.
d) $8689394.
Solutions
Expert Solution
Answer)
Calculation of Break-even point in dollars
Break-even point in dollars = Total fixed costs/ Composite contribution margin ratio
= $ 2,867,500/ 37%
= $ 7,750,000
Therefore break-even point in dollars is $ 7,750,000 and the correct option in the given question is (b).
Working Note:
Calculation of composite contribution margin ratio
Composite Contribution margin ratio = (Contribution margin of Boston division X sales mix of Boston division) + (Contribution margin of Seattle division X sales mix of Seattle division)
= (40% X 70%) + (30% X 30%)
= 28% + 9%
= 37%
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