Question

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.

Answer 1

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%