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:ProductUnits SoldSales MixA18,28880%B4,57220Total22,860100%Assume the following unit selling prices and unit variable costs:ProductSelling PriceVariable CostContribution MarginA$ 89$ 74$ 15B14910940Fixed costs are $418,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes.Required: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.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.Assume the original facts except that now fixed costs are expected to be $41,800 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?

Breakeven Point is that level of sales at which there is no profit no loss. In other words iat…

Answered: Most businesses sell several products…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 12PC

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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	18,288	80%
B	4,572	20
Total	22,860	100%

Assume the following unit selling prices and unit variable costs:

Product	Selling Price	Variable Cost	Contribution Margin
A	$ 89	$ 74	$ 15
B	149	109	40

Fixed costs are $418,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes.

Required:

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.
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.
Assume the original facts except that now fixed costs are expected to be $41,800 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?

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