A company sells two products--J and K. The sales mix is expected to be $3 of sales of Product K for every $1 of sales of Product J. Product J has a contribution margin ratio of 40% whereas Product K has a contribution margin ratio of 50%. Annual fixed expenses are expected to be $120,000. The overall break-even point for the company in dollar sales is expected to be closest to:

Question

Quizplus · Accepted Answer

Let x be the sales of Product J in dollars. 
Then the sales of Product K in dollars would be 3x.

The contribution margin for Product J is 0.4x, while the contribution margin for Product K is 0.5(3x)=1.5x.

The total contribution margin for both products is 0.4x + 1.5x = 1.9x.

The break-even point is when the total contribution margin equals the fixed expenses of $120,000:

1.9x = 120,000

x = $63,158

Therefore, the sales for Product J is $63,158 and the sales for Product K is 3($63,158) = $189,474.

The overall break-even point for the company in dollar sales would be the sum of the sales for both products:

Break-even point = $63,158 + $189,474 = $252,632

Therefore, the closest answer is C.

A Company Sells Two Products--J and K