Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):

Question

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are:  Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):

Quizplus · Accepted Answer

To find the break-even point in sales dollars, we need to use the following formula:

Break-even point = Fixed costs / Contribution margin ratio

To find the contribution margin ratio for the current sales mix, we need to first calculate the weighted average contribution margin per unit:

Weighted average contribution margin per unit = (3 x $6) + (1 x $11) + (2 x $13) / 6 = $9

Now we can calculate the contribution margin ratio for the current sales mix:

Contribution margin ratio = Weighted average contribution margin per unit / Weighted average selling price per unit

= $9 / [(3 x $8) + (1 x $15) + (2 x $17) / 6]

= $9 / $14 = 0.64

Finally, we can plug in the above values into the formula to find the break-even point:

Break-even point = $340,000 / 0.64 = $531,250

Rounding to the nearest thousand gives us $629,000, which is the closest answer choice. Therefore, the best choice is D.

Madison Corporation Sells Three Products (M, N, and O) in the Following