Question

Brief Exercise 6-9

Dixie Candle Supply makes candles. The sales mix (as a percentage of total dollar sales) of its three product lines is birthday candles 30%, standard tapered candles 55%, and large scented candles 15%. The contribution margin ratio of each candle type is shown below.

Candle Type		Contribution Margin Ratio
Birthday		20%
Standard tapered		35%
Large scented		45%

What is the weighted-average contribution margin ratio?

Weighted-average contribution margin ratio

%

If the company’s fixed costs are $457,920 per year, what is the dollar amount of each type of candle that must be sold to break even?

		Birthday		Standard tapered		Large scented
Total break-even point		$		$		$

Answer 1

Candle type	Birthday	Standard tapered	Large scented	Total
Contribution margin ratio	20%	35%	45%
(*) Sales mix %	30%	55%	15%
Weighted average Contribution margin ratio	6.00%	19.25%	6.75%	32.00%

Weighted average Contribution margin ratio

32.00%

Overall break-even point = Fixed costs / Weighted average Contribution margin ratio = 457920 / 32% =

1431000

Candle type	Birthday	Standard tapered	Large scented
Total break-even point [ Overall break-even point * Sales mix % ]	429300	787050	214650