Question

Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows:

Product	Selling Price per Unit	Variable Cost per Unit
Snowboards	$320	$160
Skis	$380	$200
Poles	$60	$10

Their sales mix is reflected in the ratio 6:4:2. If annual fixed costs shared by the three products are $178,000. Determine the break-even point in sales dollars.

Break-even point $___

Answer 1

Solution:

Computation of Weighted average Contribution margin
	Snowboards	Skis	Poles	Total
Sales price	$320.00	$380.00	$60.00
Less: Variable Espense	$160.00	$200.00	$10.00
Contribution margin	$160.00	$180.00	$50.00
Contribution margin ratio	50.00%	47.37%	83.33%
Weight	0.50	0.33	0.17
Weighted Average Contribution margin ratio	25.00%	15.79%	13.89%	54.68%

Break even point = Fixed cost / Weighted Average Contribution margin ratio

= $178000 / 54.68%

= $325,540