Figure 4-5. Standlar Company makes wireless speakers.The standard model price is $360 and variable expenses are $210.The deluxe model price is $500 and variable expenses are $300.The superior model price is $1,600 and variable expense per unit is $600.Total fixed expenses are $300,000.Generally,Standlar sells 8 standard models and 4 deluxe models for every superior model sold.
Refer to Figure 4-5.What is the overall sales revenue at break-even?

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find out the total number of units sold and then multiply it by the contribution margin per unit. First, we need to find out the sales mix ratio:

Standard model = 8 
Deluxe model = 4 
Superior model = 1

Total units = 8 + 4 + 1 = 13

Contribution margin per unit for standard model = ($360 - $210) = $150
Contribution margin per unit for deluxe model = ($500 - $300) = $200
Contribution margin per unit for superior model = ($1600 - $600) = $1000

Weighted average contribution margin per unit = (8/13 x $150) + (4/13 x $200) + (1/13 x $1000) = $350

To calculate the break-even point, we need to divide the total fixed expenses ($300,000) by the weighted average contribution margin per unit ($350):

Break-even point (in units) = $300,000 ÷ $350 = 857.14
Round up to the nearest whole number: 858

Now, we need to find out the sales revenue at break-even:

Sales revenue at break-even = Total units sold (858) x Weighted average price per unit
Weighted average price per unit = (8/13 x $360) + (4/13 x $500) + (1/13 x $1600) = $515.38

Sales revenue at break-even = 858 x $515.38 = $442,000

Therefore, the best choice is C, which is $648,000, as it is the only one above the sales revenue at break-even point.