Question

Bramble Corp. has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Bramble incurs $8510000 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:

The break even in dollars is $23000000

Explanation:

The break even point in dollars is the amount of revenue which produces no profit or no loss and where total revenue equals total cost. The break even in dollars is calculated by dividing the fixed cost by the weighted average contribution margin ratio.

Break even in dollars = Fixed costs / Weighted average contribution margin ratio

Weighted average contribution margin ratio is the contribution margin ratio of each products multiplied by the products weight in the sales mix.

Weighted average contribution margin ratio = Weight in sales mix of Product A * contribution margin ratio of product A + Weight in sales mix of Product B * Contribution margin ratio of Product B

Weighted average contribution margin ratio = 0.65 * 0.3 + 0.35 * 0.5  = 0.37

Break even in dollars = 8510000 / 0.37

Break even in dollars = $23000000