Question

In: Accounting

Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for...

Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows:

Product	Selling Price per Unit	Variable Cost per Unit
Snowboards	$330	$190
Skis	$390	$240
Poles	$50	$30

Their sales mix is reflected in the ratio 8:3:2. If annual fixed costs shared by the three products are $161,000. Determine the break-even point in sales dollars.

Break-even point $?

Expert Solution

Contribution margin per unit = selling price - variable costs

Contribution margin ratio = (contribution margin per unit / selling price) × 100

Contribution margin per unit of Skis = 390 - 240 = $150

Contribution margin ratio of Skis

= (150 / 390) × 100 = 38.46%

Contribution margin per unit of Snowboards

= 330 - 190 = $140

Snowboards contribution margin ratio

= (140 / 330) × 100 = 42.42%

Per unit contribution margin of Poles

= 50 - 30 = $20

Contribution margin ratio of Poles = (20 / 50) × 100 = 40%

Weighted average contribution margin of Salvador

= (40% × ²/¹³) + (38.46% × ³/¹³) + (42.42% × ⁸/¹³) = 0.41133

Break even point in sales dollar = fixed cost / weighted average contribution margin

Salvador break even point in sales dollar

= 161,000 / 0.41133 = $391,414

Salvador manufacturing need a revenue of $391,414 to achieve break even point in dollar. The highest contribution margin ratio is $42.42% of Snowboards.

ekkarill92 answered 1 year ago

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