Question

The following information is for Alex Corp:Corporation: Product X: Revenue Variable Cost Product Y: Revenue Variable Cost Total fixed costs $19.00 $4.00 $21.00 $11.00 $46,000 What is the breakeven point assuming the sales mix consists of two units of Product X and one unit of Product Y? A. 1,095 units of Y and 2,190 units of X 2,300 units of Y and 1,150 units of X C. 1 units of Y and 3,067 units of X D. 1,150 units of Y and 2,300 units of X

Answer 1

Formula for break even point when multiple products are manufactured and sold =

Total Fixed Cost $\div$ Weighted Average Contribution Margin per unit

Calculation of Weighted Average Contribution Margin

Contribution Margin of product X = Selling price - Variable cost

= 19 - 4 = 15

Sales mix of product X = 2 $\div$ 3 = 0.6666 = 66.66%

Weight of contribution margin of product X = 15 $\times$ 66.66%

= 9.99

Contribution Margin of product Y = Selling price - Variable cost

= 21 - 11 = 10

Sales mix of product Y = 1 $\div$ 3 = 0.3333 = 33.33%

Weight of contribution margin of product Y = 10 $\times$ 33.33%

= 3.33

Total Weighted Average Contribution Margin per unit = 9.99 + 3.33 = 13.32

BEPU = TFC $\div$ WACM per unit

= 46000 $\div$ 13.32

= 3453.45 = 3454 units

3454 is the total unit of both the products to be sold for breakeven points. So we have to findout how much of each product X and product Y should be sold at breakeven point. For this the combined units of breakeven point which is 3454 units is to be sold proportionatly among product X and product Y according to the sales mix.

Sales mix of product X = 66.66%

Breakeven unit of product X = 3454 $\times$ 66.66% = 2302, apprx 2300 units of product X

Sales mix of product Y = 33.33%

Breakeven unit of product Y = 3454 $\times$ 33.33% = 1151, apprx 1150 units of product Y