Rhino\'s Landscaping sells a quality brand of hoes, shovels, and rakes in a sale

Question

Rhino's Landscaping sells a quality brand of hoes, shovels, and rakes in a sales mix of 2:4:2 (25%, 50%, 25%).  The company's fixed costs are $61,000. Product data include the following:

Hoes Unit sales price $12.................Unit Variable costs $8

Shovels unit sales price $15.............unit variable costs $7

Rakes unit sales price $16................unit variable costs $8

Required

a.) compute the overall contribution margin per unit for the company.

b.)Determine overall breakeven point for the company (total units)

c.)Calculate the breakeven point in units for each product:

Hoes

Shovels

Rakes

d.)Determine the overall breakeven point in total sales dollars for the company

Explanation / Answer

a. Contribution margin for hoes = 12-8 = 4

Contribution margin for shovels = 15-7 = 8

Contribution margin for rakes = 16-8 = 8

Average contribution margin = sum of proportion * respective contribution margin = 25%*4+50%*8+25%*8 = $7

b. At breakeven, total contribution = total no of units * average contribution margin = X*7 = 7X, where X is the total number of units produced

At breakeven, this total contribution=fixed costs, so 7X=61000, or X=8714.29 units

c. Each product is in proportion of 25%, 50%, 25%, so

Breakeven no of units of hoes = 25%*8714.29 = 2178.57 units

Breakeven no of units of shovels = 50%*8714.29 = 4357.14 units

Breakeven no of units of rakes = 25%*8714.29 = 2178.57 units

d. Overall breakeven sales dollars = sum of (no of units * selling price per unit) for each of the 3 categories

So overall breakeven sales dollars = 2178.57 * 12 + 4357.14  * 15 + 2178.57 * 16 = $ 126,357.14

Hope this helped ! Let me know in case of any queries.

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