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 $18,00080\%$

B $4,50020$

Total $22,500100\%$

Assume the following unit selling prices and unit variable costs:

Product Selling Price Variable Cost Contribution Margin

A $ $80$ $ $65$ $ $15$

B $14010040$

Fixed costs are $$400,000$ 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 $$40,000$ 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?

Answer rating: 100% (QA)

1 Breakeven Point in Total Units and Units of A and B To calculate the breakeven point in total units and the number of units of A and B that must be sold well use the weightedaverage contribution mar... View the full answer