Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows:
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Assume an income tax rate of 20 per cent.
The break-even point for this data is 5000 units in total. How will the calculation of the break-even point change (if at all) if the relative percentages of the products in the mix change from 60 per cent Plain shoes to 40 per cent Fancy shoes?

Question

Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows: 
Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Assume an income tax rate of 20 per cent.
The break-even point for this data is 5000 units in total. How will the calculation of the break-even point change (if at all) if the relative percentages of the products in the mix change from 60 per cent Plain shoes to 40 per cent Fancy shoes?

Quizplus · Accepted Answer

The break-even point will change because the calculation above assumes a constant mix, namely 60 per cent to 40 per cent. As the mix changes to 40 per cent Plain and 60 per cent Fancy, the contribution margin per unit will change, which affects the calculation of the break-even point. Therefore, the break-even point will change.

Maxie Pty Ltd Makes and Sells Two Types of Shoes