Question

Sales Mix and Break-Even Sales

New Wave Technology Inc. manufactures and sells two products, MP3 players and satellite radios. The fixed costs are $600,400, and the sales mix is 70% MP3 players and 30% satellite radios. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
MP3 players	$80		$60
Satellite radios	200		120

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, MP3 players and satellite radios, would be sold at the break-even point?

MP3 players	units
Satellite radios	units

Answer 1

Answer to Part a.

Combined Unit Selling Price = ($80 * 70%) + ($200 * 30%)
Combined Unit Selling Price = $56 + $60
Combined Unit Selling Price = $116

Combined Unit Variable Cost = ($60 * 70%) + ($120 * 30%)
Combined Unit Variable Cost = $42 + $36
Combined Unit Variable Cost = $78

Combined Unit Contribution Margin = Combined Unit Selling Price - Combined Unit Variable Cost
Combined Unit Contribution Margin = $11 6 - $78
Combined Unit Contribution Margin = $38

Combined Break Even Sales (Units) = Fixed Cost / Combined Unit Contribution Margin
Combined Break Even Sales (Units) = 600,400 / 38
Combined Break Even Sales (Units) = 15,800 Units

Answer to Part b.

Units of MP3 Players at Break Even Point = 15,800 * 70%
Units of MP3 Players at Break Even Point = 11,060 Units

Units of Satellite Radios at Break Even Point = 15,800 * 30%
Units of Satellite Radios at Break Even Point = 4,740 Units