Question

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:

	DVDs	Equipment Sets
Price	$8	$25
Variable cost per unit	4	15

Total fixed cost is $84,650.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $20 and a variable cost per unit of $12. Total fixed cost must be increased by $28,210 (making total fixed cost $112,860). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Answer 1

1) Computation of sale mix:
Total sale= 13500+4500+9000= 27000 units
DVD= 13500/27000= 3/6
Equipment sets= 4500/27000=1/6
Mats= 9000/27000= 2/6
Therefore sales mix= 3:1:2

1) Calculation of break even point:
Contribution margin = Selling price-variable cost per unit
DVD= 8-4= $4
Equipment= 25-15= $10
Mats= 20-12= $8
Total contribution= (4*3/6)+(10*1/6)+(8*2/6)= 38/6
Break even point= Fixed cost/ contribution margin= 112860*6/38=17820
Break even sales= 17820units
DVD= 17820*3/6= 8910 units
Equipments= 17820*1/6= 2970units
Mats= 17820*2/6= 5940units