1. What is the break-even point in sales for product A, B, and C?
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First calculate the weighted average contribution margin ratio for the product mix.
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Calculate the contribution margin ratio per unit for each product individually:
contribution margin ratio = Contribution margin per units / Selling price of each units
Product | A | B | C |
Contribution margin per units | 6 | 3 | 3 |
Selling price of each units | 8 | 5 | 4 |
contribution margin ratio | 6 / 8 =0.75 | 3 / 5 =0.60 | 3/4 =0.75 |
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Divide the fixed costs by the contribution margin ratio to calculate the break-even sales for three products:
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Break-even point in sales revenue = Fixed cost / contribution margin ratio
Break-even point in sales units = Fixed cost / contribution margin per units
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Product | A | B | C |
Fixed cost | 4000 | 7000 | 1000 |
Contribution margin ratio | 0.75 | 0.60 | 0.75 |
Contribution margin per units | 6 | 3 | 3 |
Break-even sales revenue | $ 5333 | $ 11667 | $ 1333 |
Break-even point in sales units | 667 | 2333 | 333 |
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2. What is the total profit given the sales mix in the table?
Total contribution - fixed cost = profit
Product A | Product B | Product C | Total | |
Contribution (units * Contribution per units ) | 600*6 =3600 | 4000*3 =12000 | 400*3 =1200 | $16800 |
Fixed cost | 4000 | 7000 | 1000 | $12000 |
Total Profit | $4800 |
