Dolphin Swimming Pools sells and installs above ground swimming pools as well as pool accessories. For the current year, they estimate that they would sell and install 200 pools at $5,000 each. Each pool costs Dolphin $4,400 in materials and installation costs. They also expect to sell $800,000 in Accessories. Accessories generate a margin of 30%. Fixed costs (such as the showroom and administration) are $200,000.
Calculate the Break Even Point in number of swimming pools (assuming that the mix of pools and accessories remains constant).
Solution 1:
| Computation of weighted average contribution margin per unit | |||
| Particulars | Swimming Pools | Accessories | Total |
| Sales | $1,000,000.00 | $800,000.00 | $1,800,000.00 |
| Variable costs | $880,000.00 | $560,000.00 | $1,440,000.00 |
| Contribution margin | $120,000.00 | $240,000.00 | $360,000.00 |
| CM ratio | 12.00% | 30.00% | 20.00% |
Breakeven Point in dollar sales = Fixed costs / Overall CM ratio = $200,000 / 20% = $1,000,000
Breakeven sales in dollar for swimming pools = $1,000,000 * 10/18 = $555,555
Break Even Point in number of swimming pools = $555,555 / 5000 = 111 pools
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