Question
In: Accounting
Multiple Products Bone-Brain, Inc. had three products: a foot manicure kit (unit sales price $55; unit...
Multiple Products
Bone-Brain, Inc. had three products: a foot manicure kit (unit sales price $55; unit variable cost $25); a hand manicure kit (unit sales price $40; unit variable cost $15); and a hair kit (unit sales price, $75; unit variable cost $30). The company’s sales mix of the products was 3:1:1 respectively. Fixed costs were $33,000 in total. Desired ending inventory was 5,500 units spread 2:2:1 respectively.
Required: compute a) the weighted-average contribution margin, b) the weighted-average breakeven point, and c) the breakeven point for each product
Solutions
Expert Solution
Given Information,
Bone Brain Inc
| Products | Unit Sales Price | Unit Variable cost |
| Foot Manicure Kit | $55 | $25 |
| Hand Manicure Kit | $40 | $15 |
| Hair Kit | $75 | $30 |
Sales Mix of products=3:1:1 ,Fixed Cost =$33000
Ending Inventory =5500 units
| Products | Ending Inventory Mix | Ending Inventory |
| Foot Manicure Kit | 2 | 5500*2/5=2200 |
| Hand Manicure Kit | 2 | 5500*2/5=2200 |
| Hair Kit | 1 | 5500*1/5=1100 |
| Total | 5 | 5500 |
a) Computation of Weighted average Contribution Margin
Contribution Margin=Sales -Variable Cost
Method 1=
Weight
X Contribution=$32
| Products | Unit Sales Price | Unit Variable cost | Contribution=Sales-Variable Cost | Sales Mix | Weight | Weighted Average Contribution Margin |
| Foot Manicure Kit | $55 | $25 | $30 | 3 | 0.6 | $18 |
| Hand Manicure Kit | $40 | $15 | $25 | 1 | 0.2 | $5 |
| Hair Kit | $75 | $30 | $45 | 1 | 0.2 | $9 |
| Total | 5 | 1 | $32 |
Method 2=Combined contribution margins/total number of Sales Mix.
=$160/$5
=$32 per Unit
| Products | Unit Sales Price | Unit Variable cost | Contribution=Sales-Variable Cost | Sales Mix | Combined Contribution margin |
| Foot Manicure Kit | $55 | $25 | $30 | 3 | $90 |
| Hand Manicure Kit | $40 | $15 | $25 | 1 | $25 |
| Hair Kit | $75 | $30 | $45 | 1 | $45 |
| Total | $5 | $160 |
b) Computation of Weighted average Breakeven Point
BEP in Units=Total fixed Cost/Weighted Average Contribution Margin per unit
=$33000/$32
=1031 Units ( Rounded off )
C) Break even Point for Each product
| Products | Sales Mix Ratio | Break even Units |
| Foot Manicure Kit | 3 | 1031.*3/5=619 units |
| Hand Manicure Kit | 1 | 1031*1/5=206 units |
| Hair Kit | 1 | 1031*1/5=206 units |
| 5 | 1031 units |
The company must produce and sell 619 units of Foot Manicure Kit ,206 units of Hand Manicure Kit, and 206 units of Hair Kit in order to break even.
Break even in Dollar=$57735
| Products | Unit Sales Price | Break even Units | Break even Sales in Dollars=Sale price X Break even Units |
| Foot Manicure Kit | $55 | 619 | $34,045 |
| Hand Manicure Kit | $40 | 206 | $8,240 |
| Hair Kit | $75 | 206 | $15,450 |
| $57,735 |
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