Question

Please show your work

Break-Even Point in Units for a Multiple-Product Firm

Suppose that Chillmax Company now sells both pairs of shoes and fabric carryalls. The pairs of shoes are priced at $60 and have variable costs of $21 each. The carryalls are priced at $36 and have variable costs of $9 each. Total fixed cost for Chillmax as a whole equals $91,500 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Chillmax expects to sell 3,500 pairs of shoes and 875 carryalls.

Required:

1. Form a package of shoes and carryalls based on the sales mix expected for the coming year.

Product	Price	–	Unit Variable Cost	=	Unit Contribution Margin	×	Sales Mix	=	Package Unit Contribution Margin
Shoes	$		$		$				$
Carryall
Package total									$

2. Calculate the break-even point in units for pairs of shoes and for carryalls.

Break-Even Pairs of Shoes  units

Break-Even Carryalls  units

3. Check your answer by preparing a contribution margin income statement. Enter all amounts as positive value.

Chillmax Company
Contribution Margin Income Statement
At Break-Even Point in Units for a Multiple-Product Firm
	Total
Sales	$
Total variable cost
Total contribution margin	$
Total fixed cost
Operating income	$

Answer 1

Product		Price -	VC per unit    =		CM per unit   *		Sales Mix=	Package Unit
								CM
Shoes		60	21		39		0.8	31.2
Carryall		36	9		27		0.2	5.4
Package Total								36.6
Break even Units = Total Fixed cost / Package CM per package
		91500 /36.60 = 2500 packages
Number of units to Break even:
Pair of shoes (2500*0.8)			2000
Carryall (2500*0.20)			500
Req 3.
Contribution Income Statement:
			Shoes	Carryall	Total
Sales			120000	18000	138000
Less: Variable cost			42000	4500	46500
Contribution			78000	13500	91500
Less: Fixed cost					91500
Net Income					0