Question

XYZ Company annually sells 2000 units of product A and 8000 units of product B. Product A sells for $12 and costs $6 to manufacture. Product B sells for $10 and costs $6 to manufacture. Fixed costs are $18,000

a) 4%- What is the net income with this sales mix

b)4% - How many units of A & B must be sold for the company to breakeven?

c) 4% - How would your answer change if the sales mix was 8000 of product A and 2000 of product B?

d) 4% - What would you recommend to management about the sales mix of product A & B ?

Answer 1

Req a:
		A	B	Total
Units in sales mix		2000	8000
Selling price		12	10
Variable cost		6	6
CM per unit		6	4
Total contribution		12000	32000	44000
Less: Fixed cost				18000
Net income				26000
Req b:
		A	B	Total
Units in sales mix		2000	8000
Selling price		12	10
Variable cost		6	6
CM per unit		6	4
Weights		0.2	0.8
Weighted Average CM		1.2	3.2	4.4
Break even units = Fixed cost / Weighted Average Cm perr unit
		18000/4.40 = 4091 units
Number of units to be sold at break even point:
Product A	(4091*0.20)		818
Product B	(4091*0.80)		3273
Req c:
		A	B	Total
Units in sales mix		8000	2000
Selling price		12	10
Variable cost		6	6
CM per unit		6	4
Total contribution		48000	8000	56000
Less: Fixed cost				18000
Net income				38000
		A	B	Total
Units in sales mix		8000	2000
Selling price		12	10
Variable cost		6	6
CM per unit		6	4
Weights		0.8	0.2
Weighted Average CM		4.8	0.8	5.6
Break even units = Fixed cost / Weighted Average Cm perr unit
		18000/5.60 = 3215 units
Number of units to be sold at break even point:
Product A	(3215*0.8)		2572
Product B	(3215*0.2)		643
Req d:
Sales mix preferred is A: 8000 and B:2000