Question

Sales Mix and Break-Even Analysis

Michael Company has fixed costs of $1,021,330. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products are provided below.

Product	Selling Price		Variable Cost per Unit			Contribution Margin per Unit
Q	$440		$240			$200
Z	560		500			60

The sales mix for products Q and Z is 35% and 65%, respectively.

Determine the break-even point in units of Q and Z.

If required, round your answers to the nearest whole number.

Please label the break even point for Q and Z clearly.

Answer 1

Weighted Average of Contribution Margin = Contribution Margin unit of Q*35% + Contribution Margin unit of Z*65%
Weighted Average of Contribution Margin = $200*35% + $60*65%
Weighted Average of Contribution Margin = 70 + 39
Weighted Average of Contribution Margin = 109

Break Even Point in Units = Fixed Costs / Weighted Average of Contribution Margin
Break Even Point in Units = $1,021,330 / 109
Break Even Point in units = 9,370

Break Even Point in Units of Q = 9,370 *35%
Break Even Point in Units of Q = 3,280

Break Even Point in Units of Z = 9,370 *65%
Break Even Point in Units of Z = 6,091