Question

Sydney Sussex Street (SSS) company sells two types of School uniform: Passion for boys and Loud for girls. The company’s business books contain the following pieces of information for the year 2019:

Loud             Passion

Sale Price per unit $37.90      $33.10

Variable Cost per unit $29.50 $25.90

SSS’s total Fixed costs for 2019 are $57,700.

Work out the following for SSS for 2019, showing all necessary calculations:

Breakeven point for Loud and Passion (separate) in number of units, when SSS’s ratio of sales mix is 3:1 for Loud and Passion, respectively (round off to the nearest unit).

Hint: Denote number of Passion units sold as a letter (say, M); hence Loud units sold will be 3M.

Answer 1

It is given that the ratio of sales mix of SSS is 3:1(3/4:1/4) for Loud and Passion.

Let one unit be 'M' and the number of Passion units sold, 1M and hence, Loud units sold 3M.

In this situation having two products of a company, the break even point is calculated as follows.

Break even point = Fixed cost / Weighted average selling price - Weighted avarege variable cost

Weighted average selling price = ($37.90 × 3/4) + ($33.10 × 1/4) = $36.7

Weighted avarege variable costs = ($29.50 × 3/4) + ($25.90 × 1/4) = $28.6

Fixed cost = $57,700

Break even point = $57,700 / 8.1 = 7,124 units (rounded off)

Total units to be sold to break even = 7,124

1M + 3M = 7,124
4M = 7,124
M = 7,124/4 = 1,781
3M = 1,781 × 3 = 5,343

Therefore, Break even point in Units sold for Passion = 1,781 units
Break even point in Units for Loud = 5,343 units