Question

Happy Snaps, a photography studio, sells two photo packages. The standard package has a contribution margin of $5, and the deluxe package has a contribution margin of $12. Happy Snaps sells five standard packages for every one deluxe package. If fixed expenses total $74,000, how many standard and deluxe packages must be sold to break even?

If Happy Snaps change their business structure resulting in a 10% increase in fixed expenses and a $1 increase in the contribution margin for each package, what is the new breakeven point?

Answer 1

Weighted average contribution margin per unit = (Standard package contribution margin per unit * Sales mix) + (Deluxe package contribution margin per unit * Sales mix)

= ($5 * 5/6) + ($12 * 1/6)

= $6.17

Break-even units = Fixed costs / Weighted average contribution margin per unit

= $74,000 / $6.17

= 11,994

Standard package = 11,994 * 5/6 = 9,995

Deluxe package = 11,994 * 1/6 = 1,999

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Weighted average contribution margin per unit = (Standard package contribution margin per unit * Sales mix) + (Deluxe package contribution margin per unit * Sales mix)

= ($6 * 5/6) + ($13 * 1/6)

= $7.17

Break-even units = Fixed costs / Weighted average contribution margin per unit

= $81,400 / $7.17

= 11,353

Standard package = 11,353 * 5/6 = 9,461

Deluxe package = 11,353 * 1/6 = 1,892