Question

A company sells two models of a product—basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. Fixed costs are $15,000. If the company usually sells 5,000 basic models and 2,500 premium models, then the break-even point in composite units is _________ units.

What are the steps

Answer 1

Contribution Margin Per Unit = Sales price - variable cost per unit
basic
= $100-75
=$25
premium
=$150-100
=$50
Standard mix = 5000 models of basics and 2500 models of premium
contributio margin per standard mix = ($25*5000) + ($50*2500)
=$125000+$125000
=$250000
Break even point in sales mix = Fixed cost / contribution margin per sales mix
=$15000/250000
=0.06 units
Number of units = 0.06 sales mix *7500 models per sales mix
=450 units