The Glitter Company has three products - A, B and C - having contribution margins of $3, $2 and $1 respectively. The Sales Manager is planning to sell 200 000 units in the next period, consisting of A (20 000), B (80 000) and C (100 000). The company's fixed costs for the period were $255 000. What is the total break-even point for the company, assuming that the given sales mix is maintained?

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the following formula:

Break-even point = Fixed costs / Contribution margin ratio

First, let's calculate the contribution margin ratio for each product:

Product A: Contribution margin / Sales price = $3 / $15 = 0.2
Product B: Contribution margin / Sales price = $2 / $10 = 0.2
Product C: Contribution margin / Sales price = $1 / $5 = 0.2

The contribution margin ratio for each product is the same (0.2), which means that the sales mix doesn't affect the overall contribution margin ratio.

Now, let's calculate the total contribution margin for the company:

Total contribution margin = (20 000 x $3) + (80 000 x $2) + (100 000 x $1) = $260 000

Using the contribution margin ratio, we can calculate the break-even point:

Break-even point = $255 000 / 0.2 = 1 275 000

So the total break-even point for the company is 1 275 000 units. However, we are given a specific sales mix, so we need to adjust our calculation accordingly:

Product A: 20 000 / 200 000 = 0.1
Product B: 80 000 / 200 000 = 0.4
Product C: 100 000 / 200 000 = 0.5

These percentages represent the sales mix for each product. To calculate the break-even point for each product, we need to multiply the total break-even point by the percentage for each product:

Product A break-even point = 1 275 000 x 0.1 = 127 500
Product B break-even point = 1 275 000 x 0.4 = 510 000
Product C break-even point = 1 275 000 x 0.5 = 637 500

Finally, we add up the break-even points for each product to get the total break-even point for the company:

Total break-even point = 127 500 + 510 000 + 637 500 = 1 275 000

Therefore, the best choice is B: 159 375.

The Glitter Company Has Three Products - A, B and C