Crusher Machinery Inc. sells three heavy-duty construction machines. Information on these machines is as follows: Total fixed costs for the year are $890,000. Based on this information, what would be the expected break-even point for Crusher for the year?

Question

Crusher Machinery Inc. sells three heavy-duty construction machines. Information on these machines is as follows:  Total fixed costs for the year are $890,000. Based on this information, what would be the expected break-even point for Crusher for the year?

Quizplus · Accepted Answer

The weighted average contribution margin (WACM) for these three machines is calculated as: (CM x Sales mix for bulldozer) + (CM x Sales mix for crane) + (CM x Sales mix for dump truck), or ($40 x .30) + ($45 x .50) + ($50 x .20) = $12.00 + $22.50 + $10.00 = $44.50. This WACM is then divided into the annual fixed costs to determine the annual break-even point; $890,000 ÷ $44.50 = 20,000 units.