Question

Oriole Inc manufactures model airplanes and repair kits. The planes account for 75% of the sales mix, and the kits the remainder. The variable cost ratio for the planes is 80% and 65% for the kits. Fixed costs are $114000. Compute the breakeven point in sales dollars.

Answer 1

Answer:

Break-even point (dollars)= $480,000

Explanation:

Giving the following information:

Fixed costs are $114000.

Sales mix:

Planes= 0.75

Kits= 0.25

Contribution margin ratio:

Planes= 0.20

Kits= 0.35

To calculate the break-even point in dollars, we need to use the following formula:

Break-even point (dollars)= Total fixed costs / Weighted average contribution margin ratio

Weighted average contribution margin ratio= sales mix*contribution margin ratio

Weighted average contribution margin ratio= 0.75*0.2 + 0.25*0.35

Weighted average contribution margin ratio= 0.2375

Break-even point (dollars)= 114,000/0.2375

Break-even point (dollars)= $480,000