Question

In: Accounting

I know that a sales mix occurs for product sales of: A - 65% B -...

I know that a sales mix occurs for product sales of:

A - 65%

B - 20%

C - 15%

Asked to prepare a Breakeven Package analysis, but I need a sales mix in units for my equation. How do I do that?

Solutions

Expert Solution

Sales mix is the proportion in which two or more products are sold.

The calculation method for the break-even point of sales mix is based on the contribution approach method. Since we have multiple products in sales mix therefore it is most likely that we will be dealing with products with different contribution margin per unit and contribution margin ratios. This problem is overcome by calculating weighted average contribution margin per unit and contribution margin ratio. These are then used to calculate the break-even point for sales mix.

The calculation procedure and the formulas are discussed via following example:

Example: Formulas and Calculation Procedure

Following information is related to sales mix of product A, B and C.

Product

A

B

C

Sales Price per Unit

$15

$21

$36

Variable Cost per Unit

$9

$14

$19

Sales Mix Percentage

20%

20%

60%

Total Fixed Cost

            $40,000

Calculate the break-even point in units and in dollars.

Calculation

Step 1: Calculate the contribution margin per unit for each product:

Product

A

B

C

Sales Price per Unit

$15

$21

$36

− Variable Cost per Unit

$9

$14

$19

Contribution Margin per Unit

$6

$7

$17

Step 2: Calculate the weighted-average contribution margin per unit for the sales mix using the following formula:

Product A CM per Unit × Product A Sales Mix Percentage
+ Product B CM per Unit × Product B Sales Mix Percentage
+ Product C CM per Unit × Product C Sales Mix Percentage
= Weighted Average Unit Contribution Margin

Product

A

B

C

Sales Price per Unit

$15

$21

$36

− Variable Cost per Unit

$9

$14

$19

Contribution Margin per Unit

$6

$7

$17

× Sales Mix Percentage

20%

20%

60%

$1.2

$1.4

$10.2

Sum: Weighted Average CM per Unit

$12.80

Step 3: Calculate total units of sales mix required to break-even using the formula:

Break-even Point in Units of Sales Mix = Total Fixed Cost ÷ Weighted Average CM per Unit

Total Fixed Cost

$40,000

÷ Weighted Average CM per Unit

$12.80

Break-even Point in Units of Sales Mix

3,125

Step 4: Calculate number units of product A, B and C at break-even point:

Product

A

B

C

Sales Mix Ratio

20%

20%

60%

× Total Break-even Units

3,125

3,125

3,125

Product Units at Break-even Point

625

625

1,875

Step 5: Calculate Break-even Point in dollars as follows:

Product

A

B

C

Product Units at Break-even Point

625

625

1,875

× Price per Unit

$15

$21

$36

Product Sales in Dollars

$9,375

$13,125

$67,500

Sum: Break-even Point in Dollars

           $90,000


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