A company can sell 25,000 tarts at $4.50 and 225,000 doughnuts at $1. What's the break-even...

A company can sell 25,000 tarts at $4.50 and 225,000 doughnuts at $1. What's the break-even point in unit and sales dollars for each? Fixed costs are $125,000. Variable costs are .40 for doughnuts and $1.80 for tarts.

Expert Solution

All working forms part of the answer
Question requires calculation of Weighted Average Contribution mArgin
Working

	Tarts	Doughnuts
Sale Price	4.5	1
Variable cost	1.8	0.4
Contribution Margin	2.7	0.6
Units [total = 250000]	25000	225000
% of total mix of 250000 units	10%	90%

	Tarts	Doughnuts	Total
Units	25000	225000	250000
Total contribution margin	[25000 x 2.7] 67500	[225000 x 0.6] 135000	202500

Total contribution	202500
Total units	250000
Weighted Average contribution margin per unit	0.81

Break Even calculation

A	Total Fixed Cost	125000
B	Weighted Average contribution margin	0.81
C=A/B	Break Even point in Units	154321
D=10% of C	Tarts 10%	15432
E=90% of C	Doughnuts 90%	138889

	Break Even units (A)	Sale Price (B)	Break Even in Sales Dollars (A x B)
Tarts	15432	4.5	69444
Doughnuts	138889	1	138889

ekkarill92 answered 2 years ago

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