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Sales Mix and Break-Even Analysis Megan Company has fixed costs of $1,185,750. The unit selling price,...

Sales Mix and Break-Even Analysis

Megan Company has fixed costs of $1,185,750. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow:

Product	Selling Price	Variable Cost per Unit	Contribution Margin per Unit
QQ	$440	$180	$260
ZZ	600	440	160

The sales mix for Products QQ and ZZ is 65% and 35%, respectively. Determine the break-even point in units of QQ and ZZ. If required, round your answers to the nearest whole number.

a. Product QQ________ units

b. Product ZZ _________ units

Expert Solution

Answer)

Calculation of Break-even point in units

Since in the given question, we have two products with different selling price per unit, different variable cost per unit and different sales mix, we will use the concept of weighted average selling price and weighted average variable cost to compute the break-even point in units.

Formulae:

Break –even points in units = Total Fixed cost/ (Weighted average selling price per unit – weighted average variable expenses per unit)

= $ 1,185,750/ ($ 496 - $ 271)

= $ 1,185,750/$ 225

= 5,270 units

Therefore the company is required to sell 5,270 units to break even.

Calculation of break even sales in units of Product QQ

Break –even points in units of Product QQ = Total units Sold X percentage of sales of Product QQ

= 5,270 units X 65%

= 3,425.50 units or 3,426 units rounded off

Therefore, the break-even point in units for Product QQ is 3,426 units.

Calculation of break even sales in units of Product ZZ

Break –even points in units of Product ZZ = Total units Sold X percentage of sales of Product ZZ

= 5,270 units X 35%

= 1,844.50 units or 1,845 units rounded off

Therefore, the break-even point in units for Product ZZ is 1,845 units.

Working Notes:

Calculation of weighted average selling price per unit:

Weighted average selling price per unit= [(Selling price per unit of Product QQ) X (Sales percentage of product QQ)] + [(Selling price per unit of Product ZZ) X (Sales percentage of product ZZ)]

= ($ 440 X 65%) + ($600 X 35%)

= $ 286 + $ 210

= $ 496

Calculation of weighted average variable cost per unit:

Weighted average variable cost per unit = [(Variable cost per unit of Product QQ) X (Sales percentage of product QQ)] + [(Variable cost per unit of Product ZZ) X (Sales percentage of product ZZ)]

= ($ 180 X 65%) + ($ 440 X 35%)

= $ 117 + $ 154

= $ 271

ekkarill92 answered 1 year ago

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