Question

Crane Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Crane incurs $6845000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is

Answer 1

Answer:

= $18,500,000.

Explanation:

The break-even point (BEP) in sales revenue is the minimum amount of sales revenue that Crane 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 $6,845,000.

Beak-even point sales revenue

=  General fixed cost/ Weighted average contribution margin

So we can apply the formula to the question as follows:

Step 1

Calculate the weighted average contribution margin ratio

= (0.65* 30%) + (0.35* 50%)

= 37%

Step 2

Calculate the break-even point sales

BEP (sales) = $6,845,000./37%

= $18,500,000.

The break-even point in dollars is $18,500,000