Figure 4-4.Yerke Company makes jungle gyms and tree houses for children. For jungle gyms, the price is $120 and variable expenses are $90 per unit. For tree houses, the price is $200 and variable expenses are $100. Total fixed expenses are $253,750. Last year, Yerke sold 12,000 gyms and 4,000 tree houses.
-Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000 units. What is the sales revenue at break-even?

Question

Quizplus · Accepted Answer

To find the break-even sales revenue, calculate the contribution margin per unit for each product and then determine the weighted average contribution margin. Jungle gyms contribute $30 per unit ($120 - $90), and tree houses contribute $100 per unit ($200 - $100). With the new expected sales mix (12,000 gyms and 8,000 tree houses), calculate the weighted average contribution margin and use it to find the break-even point in sales revenue.