Perrson Company makes two types of backpacks. Data for the company\'s activity d

Question

Perrson Company makes two types of backpacks. Data for the company's activity during a typical month are presented below. Use this data for questions 15 to 17.


School
Hiker


Model
Model

Sales units
40,000
40,000

Selling price per unit
$6
$18

Variable expense per unit
$2
$10
The company's total fixed expenses are $80,000. There are no beginning or ending inventories.



What is the break-even point in terms of sales dollars if the sales mix remains constant?

If the sales mix is changed to 60,000 units of the school model and 20,000 units of the hiker model, what will be the break-even point in terms of sales dollars?

Explanation / Answer

BEP= Fixed Cost/(Price-Variable Cost) To Know the fixed cost of both models, arrive at the ratio of sales mix of both models. ------------------------School-----------------------------------hiker----------------------------- Sales-------------------40000------------------------------------40000----------------------------- Selling price------------$6----------------------------------------$18------------------------------ Sales------------------$240,000--------------------------------$720,000-------------------------- Ratio-------------------1--------------------------------------------3------------------------------ Fixed Cost as per ratio: 20000-------------------------------$60000--------------------------- Apply BEP FORMULA: 20000/(6-2)---------------------60000(18-10)---------------------- BEP:----------------------5000 UNITS @$6 each------------7500 UNITS @$18 each---------- If the sales mix is changed to 60000 units of School and 20000 units of hiker. The sales mix is 60000x6=360,000 and 20000x18=360,000 respectively. Then the ratio would be 1:1. So the fixed cost 0f $80,000 is divided between School and Hiker as $40,000 each. Then BEP for School is 40000/(6-2)= 10,000 units @ $6 each tand BEP for hiker is 40000/(18-10)= 5000 units @ $18 each

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