Question

Dorothy O’Connon has recently left her job as a florist at a grocery store chain to start her own business, Dorothy’s Floral Delivery. She is trying to determine her break-even point. She plans to sells two types of flower arrangements. Based on her research, she is projecting the sales mix to be 60% basic flower arrangements and 40% deluxe flower arrangements. Basic arrangements have a variable cost per unit of $9.8 and a selling price of $21.56. Deluxe arrangements have a variable cost per unit of $16.66 and a selling price of $39.2. Her fixed costs are $12054. How many basic arrangements would she have to sell to break-even?

Answer 1

Solution:

	Basic Flower	Deluxe Flower
Unit Selling Price	$21.56	$39.20
Less: Variable Costs	$9.80	$16.66
Contribution Margin per unit	$11.76	$22.54
x Sales Mix Ratio	60%	40%
	$7.0560	$9.0160
Weighted Avg Contribution Margin per unit (7.06 + 9.02)	$16.0720
Total Fixed Costs	$12,054
Composite Break Even Units for the company (Total Fixed Cost / Weighted Avf CM per unit)	750
	Basic Flower	Deluxe Flower
Composite Break Even Units	750	750
x Sales Mix	60%	40%
Break Even Volume Sales for each product	450	300

Number of Units of basic arrangements would she have to sell to break-even = 450 Units

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