Question

Sapphire sells two products: ordinary laptops and premium laptops. Ordinary laptops are priced at $605 each and premium laptops are priced at $1,105 each. The variable cost per unit is $555 per ordinary laptop and $1,040 per premium laptop. Total fixed cost is $145,750. Sapphire's expected sales mix is four ordinary laptops to one premium laptop. Calculate the break-even point in units for ordinary laptops.

a.470 laptops b.2,200 laptops c.1,040 laptops d.550 laptops

I know the answer is B. If you could please show me how to get to that solution. Any extra explanation would be helpful. Thank you!

Answer 1

Contribution Margin = Sales price - Variable costs

Ordinary laptops = 605 - 555 = 50

Premium laptops = 1105 - 1040 = 65

It is given that sales mix is 4 : 1

Now, we need to calculate weighted average contribution margin

= Ordinary laptops (50 * 4/5) + premium laptops (65 * 1/5)

= 40 + 13

= 53

Overall Breakeven point = Fixed cost/Weighted average contribution margin

= 145,750/53

= 2750

Now, remember the sales mix is 4:1

So, break even point for ordinary laptops

= 2750 * 4 / 5

= 2200