Question

Sales Mix and Break-Even Analysis Michael Company has fixed costs of $2,313,840. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow: Product Selling Price Variable Cost per Unit Contribution Margin per Unit QQ $640 $380 $260 ZZ 460 280 180 The sales mix for Products QQ and ZZ is 85% and 15%, respectively. Determine the break-even point in units of QQ and ZZ. If required, round your answers to the nearest whole number. a. Product QQ units b. Product ZZ units

Answer 1

Answer:

a.

Break even in units of QQ is 7930 units

b.

Break even in units of ZZ is 1400 units

Explanation:

To calculate the break even in units of each product, we first need to find out the overall break even point in units for the company. The over all break even point in units for a two product company is,

Overall Break even in units =  Total Fixed costs / Weighted average contribution margin per unit

Where,

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

Weighted average CM per unit = 0.85 * 260 + 0.15 * 180

Weighted average CM per unit = $248 per unit

Over all break even in units = 2313840 / 248     =  9330 units

a.

Break even in units Product QQ = 9330 * 0.85 = 7930.5 rounded off to 7930 units

b.

Break even in units Product ZZ = 9330 * 0.15 = 1399.5 rounded off to 1400 units