Salvador Company sells two products, as follows:
Fixed expenses total $500,000 annually. The expected sales mix in units is 60% for Product Y and 40% for Product Z.
How much is Salvador Company's expected break-even sales in dollars?

Question

Salvador Company sells two products, as follows:
 Fixed expenses total $500,000 annually. The expected sales mix in units is 60% for Product Y and 40% for Product Z.
How much is Salvador Company's expected break-even sales in dollars?

Quizplus · Accepted Answer

BEP in sales dollars = Fixed Costs / CM Ratio
The weighted average CM = ($150 x 0.60) + ($400 x 0.40) = $250
The weighted average Sales Price = ($300 x 0.60) + ($700 x 0.40) = $460
Weighted Average CM ratio = $250 / $460 = 0.543478
BEP in $ = $500,000 / 0.543478 = $920,000 (rounded)

Salvador Company Sells Two Products, as Follows