Question

Swifty Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swifty incurs $4625000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point?

Answer 1

Answer:

$15,279,542.57

Explanation:

The break even point in sales revenue is the minimum amount of sales revenue that Swift Company should make in order for it to make no profit or loss. This sales revenue would produce a total contribution exactly equal to the fixed cost of $4,625,000

Beak-even point sales revenue  for the whole company=

= General fixed cost/ Weighted average contribution margin

Step 1

Calculate the weighted average contribution margin ratio

=  (0.65× 30%)+  (0.35 × 50%).= 19.675%

Step 2

Calculate the break-even point sales

BEP (sales) = $4625000/19.675

=  23,506,988.56

Step 3

Sales of sporting goods  at BEP

=65% ×  23,506,988.56 =  $15,279,542.57

=

Answer 2

Answer:

$8,125,000

Explanation:

Break-even point is the level of sales on which business has no profit no loss situation. The business only covers the variable and fixed cost at this point.

Total Contribution ratio = (65% x 30%) + (35% x 50%) = 19.5% + 17.5% = 37%

Fixed cost = $4,625,000

Break-even point = Fixed cost / Contribution margin ratio = $4,625,000 / 37% = $12,500,000

Break-even Sales for Sports Division = $12,500,000 x 65% = $8,125,000