Question

The Mugger sells three types of mugs, flowers, dogs, and sports. The following information is available: Flowers Dogs Sports Total Sales Volume 25,000 100,000 50,000Selling Price $20 $25 $10Variable cost per unit 10 20 6Total fixed costs $500,000 REQUIRED: 1. What is the breakeven point for The Mugger? 2. Would you recommend promoting the change in product mix to 4 to 2 to 1 of flower mugs, dog mugs, and sports mugs? Why?

Answer 1

Answer:

See answer below

Explanation:

1. The break even point for flowers = Fixed costs / Contribution margin

Where contribution margin = Selling price per unit - Variable cost per unit

= $500,000 / ($20 - $10)

= $500,000 / $10

= 50,000 units

Therefore,

Break even point for the Mugger is 50,000 units.

Break even points for Dogs = Fixed costs ÷ Contribution margin

= $500,000 / ($25 -$20)

= $500,000 / $5

= 100,000 units

Break even points Sports = Fixed costs / Contribution margin

= $500,000 / ($10 - $6)

= $500,000 / $4

= 125,000 units

2. I can recommend that the mugger should change its product mix from 1:4:2 (Flowers, dogs, sports) to 4:2:1 (Flowers , dogs , sports)

• Because there is an increase in the break even points for each of the mugger.