Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among various products sold by a firm. Assume that the sales of Jordan Incorporated for a typical year are as follows: Product Units Sold Sales Mix 18,320 80% 4,580 20 22,900 100% B Total Assume the following unit selling prices and unit variable costs: Contribution Margin $ 15 40 Product Selling Price Variable Cost $ 90 150 $75 110 Fixed costs are $420,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes. Required: 1. Determine the breakeven point in total units and, for this breakeven point, calculate the number of units of A and B that must be sold. Use the weighted-average contribution margin approach. 3. Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio (CMR). (Hint: The weights for calculating the weighted-average CMR are based on relative sales dollars, not units, of the two products.) Break down the total sales dollars breakeven point into sales dollars for product A and sales dollars for product B. 5. Assume the original facts except that now fixed costs are expected to be $42,000 higher than originally planned. How does this expected increase in fixed costs affect the breakeven point in units? How does the percentage change in the breakeven point compare to the percentage increase in fixed costs?
Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among various products sold by a firm. Assume that the sales of Jordan Incorporated for a typical year are as follows: Product Units Sold Sales Mix 18,320 80% 4,580 20 22,900 100% B Total Assume the following unit selling prices and unit variable costs: Contribution Margin $ 15 40 Product Selling Price Variable Cost $ 90 150 $75 110 Fixed costs are $420,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes. Required: 1. Determine the breakeven point in total units and, for this breakeven point, calculate the number of units of A and B that must be sold. Use the weighted-average contribution margin approach. 3. Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio (CMR). (Hint: The weights for calculating the weighted-average CMR are based on relative sales dollars, not units, of the two products.) Break down the total sales dollars breakeven point into sales dollars for product A and sales dollars for product B. 5. Assume the original facts except that now fixed costs are expected to be $42,000 higher than originally planned. How does this expected increase in fixed costs affect the breakeven point in units? How does the percentage change in the breakeven point compare to the percentage increase in fixed costs?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and
the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among
various products sold by a firm. Assume that the sales of Jordan Incorporated for a typical year are as follows:
Product Units Sold Sales Mix
A
B
Total
18,320
4,580
22,900
80%
20
100%
Assume the following unit selling prices and unit variable costs:
Contribution
Margin
$ 15
40
Product Selling Price Variable Cost
A
B
$90
150
$75
110
Fixed costs are $420,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales
volume changes.
Required:
1. Determine the breakeven point in total units and, for this breakeven point, calculate the number of units of A and B that must be
sold. Use the weighted-average contribution margin approach.
3. Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio (CMR).
(Hint: The weights for calculating the weighted-average CMR are based on relative sales dollars, not units, of the two products.) Break
down the total sales dollars breakeven point into sales dollars for product A and sales dollars for product B.
5. Assume the original facts except that now fixed costs are expected to be $42,000 higher than originally planned. How does this
expected increase in fixed costs affect the breakeven point in units? How does the percentage change in the breakeven point
compare to the percentage increase in fixed costs?
Complete this question by entering your answers in the tabs below.
Required 1 Required 3
Required 5
Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio
(CMR). (Hint: The weights for calculating the weighted-average CMR are based on relative sales dollars, not units, of the two
products.) Break down the total sales dollars breakeven point into sales dollars for product A and sales dollars for product B.
(Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
Overall Breakeven point in dollars
Breakeven point in dollars for Product A
Breakeven point in dollars for Product B
< Required 1
Required 5 >
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