Question

Question 3: Company XY sells two types of hats, A and B. Sales mix sells two types of hats, A and B. Sales mix of Company XY includes 20.000 hat A's and 50.000 hat B's. Unit sales price is 50 TL, and unit variable cost is 30 TL for hat A. Unit sales price is 35 TL, and unit variable cost is 20 TL for hat B. Total fixed cost of Company XY is 805.000 TL Required: a) How many hat A and hat B needed to be sold to reach to Break Even Point? b) How much of revenue needed to be earned to reach to Break Even Point? c) What will operating income/loss be if company sells 5.000 bundles of A and B?

Answer 1

Solution a:

Computation of weighted average contribution margin per unit
Particulars	Hat A	Hat B	Total
Selling price per unit	50	35
Variable cost per unit	30	20
Contribution margin per unit	20	15
Sales mix	2/7	5/7
Weighted average contribution margin per unit	5.7143	10.7143	16.4286

Nos of hats to be sold to break even = Fixed costs / Weighted average contribution margin pe runit

= 805 / 16.4286 = 49 Hat

Hat A to be sold at break even point = 49*2/7 = 14 hat

Hat B to be sold at break even point = 49*5/7 = 35 hat

Solution b:

Revenue to be earned to reach break even point = (14*50) + (35*35) = 1925

Solution c:

Operating income / (Loss) = Contribution margin - Fixed costs

= (5*20 + 5*15) - 805 = (630)