1.
Calculate the break-even point in sales units for the overall Product E for the current year.
1.
Explanation of Solution
Sales mix: It refers to the relative distribution of the total sales among the number of products sold by a company. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.
Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:
Determine the break-even point in sales units for the overall Product E.
Fixed cost =$46,800
Contribution margin per unit =$10.40 per unit (3)
Working note (1):
Note: For break-even analysis, the Product-12” Pizza and Product-13” Pizza are considered as the components of one overall company’s Product E.
Determine the selling price per unit of Product E.
Working note (2):
Determine the variable cost per unit of Product E.
Working note (3):
Determine the unit contribution margin of Product E.
Therefore, the break-even point in sales units for the overall Product E for the current year is 4,500 units.
2.
Calculate the break-even sales (units) for Product-12” Pizza and Product-16” Pizza.
2.
Explanation of Solution
Determine the break-even point in sales units:
For Product-12” Pizza
Break-even point in sales units for Product E =4,500 units (refer Part a)
Sales Mix for Product Laptops =30%
For Product-16” Pizza
Break-even point in sales units for Product E =4,500 units (refer Part a)
Sales Mix for Product Tablets =70%
Therefore, the break-even point in sales units for the Product 12” Pizza is 1,350 units and for the Product 16” Pizza is 3,150 units.
3.
Compare the break-even point with that in Part (1).
3.
Explanation of Solution
The break-even point calculated in (1) with a sales mix of 50% 12” Pizza and 50% 16” Pizza is 4,680 units. It is more than the break-even point of 4,500 units calculated in Part 1.
The reason for the difference is the sales mix which is allocated at a lower percentage to the 12” Pizza (50%) and 16” Pizza (50%) in the present case. It resulted in the lower contribution margin per unit of $10.00 per unit than in Part 1 ($10.40 per unit). Thus, it increases the break-even point of sales (units) in the present case.
Working note (4):
Determine the break-even point in sales units for the overall Product E.
Fixed cost =$46,800
Contribution margin per unit =$10.00 per unit (7)
Note: For break-even analysis, the Product-12” Pizza and Product-16” Pizza are considered as the components of one overall company’s Product E.
Working note (5):
Determine the selling price per unit of Product E.
Working note (6):
Determine the variable cost per unit of Product E.
Working note (7):
Determine the unit contribution margin of Product E.
Working note (8):
Determine the break-even point in sales units:
For Product-12” Pizza
Break-even point in sales units for Product E =4,680 units (4)
Sales Mix for Product 12” Pizza =50%
Working note (9):
For Product-16” Pizza
Break-even point in sales units for Product E =4,680 units (4)
Sales Mix for Product 16” Pizza =50%
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Chapter 6 Solutions
Managerial Accounting
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