Sales Mix and Break-Even Sales New Wave Technology Inc. manufactures and sells t

Question

Sales Mix and Break-Even Sales

New Wave Technology Inc. manufactures and sells two products, MP3 players and satellite radios. The fixed costs are $475,000, and the sales mix is 30% MP3 players and 70% satellite radios. The unit selling price and the unit variable cost for each product are as follows:

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, MP3 players and satellite radios, would be sold at the break-even point?

Explanation / Answer

SOLUTION

Contribution margin = Sales price - Variable costs

MP3 players = $50 - $40 = $10

Satellite radios = $130 - $80 = $50

(A) Breakeven point in units = Fixed costs / Contribution

= $475,000 / [($10 * 30%) + ($50 *70%)]

= $475,000 / ($3 + $35)

=  $475,000 / $38

= 12,500 units

(B) MP3 players = 12,500 units * 30% = 3,750 units

Satellite radios = 12,500 units * 70% = 8,750 units

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