Question

Presto Candle Supply makes candles. The sales mix (as a percentage of total dollar sales) of its three product lines is birthday candles 25%, standard tapered candles 40%, and large scented candles 35%. The contribution margin ratio of each candle type is as follows:

Candle Type		Contribution Margin Ratio
Birthday		10%
Standard tapered		20%
Large scented		40%

If the company’s fixed costs are $428,750 per year, what is the dollar amount of each type of candle that must be sold to break even? (Round weighted-average contribution margin ratio to 2 decimal places, e.g. 15.25%.)

		Break-even in sales
Birthday:		$
Standard tapered:		$
Large scented:		$

Answer 1

Ans:

Calculation of weighted average contribution margin ratio :

Contribution Margin Ratio
Birthday		10%
Standard tapered		20%
Large scented		40%

Weighted Average contribution margin : 0.25*10% + 0.40*20% + 0.35*40% = 24.5%

Fixed Asset : $428,750

Breakeven sales : $428,750 / 24.5% = $1,750,000

Breakeven Sales :

Birthday : $1,750,000 * 25% = $437,500

Standard Tapered : $1,750,000 * 40% = $700,000

Large Scented : $1,750,000 * 35% = $612,500

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