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 $___
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
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