Clovis Supply sells two models of saddles to retail outfitters—basic and custom.

Question

Clovis Supply sells two models of saddles to retail outfitters—basic and custom. Basic saddles sell for $970 each and custom saddles sell for $1,520. The variable cost of a basic saddle is $580 and that of a custom saddle is $760. Annual fixed costs at Clovis are $267,150. The break-even point at the current sales mix is 500 total units.

Basic Saddles =

Custom Saddles=

What is the assumed sales mix?

Basic Saddles = %

Custom Saddles = %

Required: How many basic saddles and how many custom saddles are sold at the break-even level?

Explanation / Answer

We know at break even point ,

Contribution = Fixed cost.

Total units are 500 , lets assume basic units are Y then custom units are 500-Y

now , the equation

Y*390+(500-Y)*760 = 267150

390Y + 380000-760Y =267150

Y = 305

so basic units = 305

and customs unit = 195

Assumed Sales Mix

Basic Saddles = 61 % = 305/500*100

Custom Saddles = 39% = 195/500*100

Basic Custom Selling price 970 1520 Variable cost 580 760 Contribution 390 760

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