Answer:
Beak-even point = 450 units
Explanation:
The break-even point is the level of activity where a business makes no profit or loss. At this level of activity, the total contribution equals the total fixed costs.
To calculate the break even point in a multi product scenario, we use the formula below:
<em>Break-even point = Fixed cost for the period / average contribution per unit</em>
<em>Average contribution per unit = Total contribution in a mix/ units in a mix</em>
We will follow the steps below to work out the Break-even point:
Step 1
<em>Calculate the average contribution per unit</em>
<em>contribution per unit for each product= selling price - variable cost</em>
Basic model = 100- 75 = $25
Premium model = 150 - 100 = $50
<em>Average contribution per unit</em> =<u> ( 5000 × $25) + (2500 × $50)</u>
( 5000 + 2500) units
= $33.33 per unit
Step 2
<em>Calculate the Break-even point</em>
Break even point = $15,000/ $33.33
= 450 units
