Question

Sales Mix and Break-Even Sales Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are as follows: Products Unit Selling Price Unit Variable Cost Sales Mix Laptops $1,600 $800 40% Tablets 900 450 60% The estimated fixed costs for the current year are $11,682,000. Required: 1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year. units 2. Based on the break-even sales (units) in part (1), determine the unit sales of both laptops and tablets for the current year. Laptops units Tablets units 3. Assume that the sales mix was 60% laptops and 40% tablets. Compare the break-even point with that in part (1). Why is it so different? units The break-even point is lower  in this scenario than in part (1) because the sales mix is weighted more heavily  toward the product with the higher contribution margin per unit  of product.

Answer 1

Requirement 1:

Break even units = Fixed cost / Weighted average contribution margin

Laptop product's contribution margin = $1,600 - 800 = $800

Tablet product's contribution margin = $900 - $450 = $450

Weighted average contribution margin = ($800 * 40%) + ($450 * 60%) = $590

Break even units sales = $11,682,000 / $590 per unit = 19,800 Units

Requirement 2:

Break even sales (units) of each products

Laptops	19,800 units * 40% = 7,920 Units
Tablets	19,800 units * 60% = 11,880 Units

Requirement 3:

Break even units = Fixed cost / Weighted average contribution margin

Laptop product's contribution margin = $1,600 - 800 = $800

Tablet product's contribution margin = $900 - $450 = $450

Weighted average contribution margin = ($800 * 60%) + ($450 * 40%) = $660

Break even units sales = $11,682,000 / $660 per unit = 17,700 Units

Laptops	17,7000 units * 60% = 10,620 Units
Tablets	17,700 units * 40% = 7,080 Units

Difference in Break even units sales due to change in sales mix = 19,800 units - 17,700 Units = 2,100 Units.

The break-even point is lower in this scenario than in part (1) because the sales mix is weighted more heavily towards the product with the higher contribution margin per unit of product.

All the best...