Question

Multiple-Product Break-even, Break-Even Sales Revenue Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows: DVDs Equipment Sets Price $8 $25 Variable cost per unit 4 15 Total fixed cost is $76,680. Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $18 and a variable cost per unit of $11. Total fixed cost must be increased by $25,560 (making total fixed cost $102,240). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Compute the break-even quantity of each product.

Answer 1

Solution:

Compute break even point of DVD , Equipment and Yoga mats:

Particulars	DVD	Equipment sets	Mats
Selling price	8	25	18
Variable cost	4	15	11
Contribution	4	10	7
Sales mix	0.5	0.167	0.333

Combined break even point = fixed cost / weighted average contibution

=102,240/($4*0.5)+($10*0.167)+($7*0.333)

=102,240/6

=17,040 units

BEP of DVD = 17,040 *0.5 = 8,520 units

BEP of Equipments sets =17,040*0.167 =2,846 units

BEP of Yog mats = 17,040*0.333 =5,764 units

Working:

Sales mix DVDs and equipment sets:

Particulars	DVD	Equipment sets	mats	Total
Number of units	13,500	4,500	9,000	27,000
Sales mix	0.5	0.167	0.333	1