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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Sales mix and break-even sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $620,000, and the sales mix is 40% bats and 60% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products Unit Selling Price Unit Variable Cost
Bats $90 $50
Gloves 105 65
  1. a. Compute the break-even sales (units) for the overall product, E.
  2. b.  How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

a.

To determine

Sales mix: It refers to the relative distribution of the total sales among the number of products sold by a company. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

To determine: the break-even point in sales units for the overall Product E.

Explanation

Determine the break-even point in sales units for the overall Product E.

Fixed cost =$620,000

Contribution margin per unit =$40 per unit (3)

Break-evenpointinSales(units)forProductE] =FixedCostsContributionMarginperunit=$620,000$40=15,500units

Working notes:

Note: For break-even analysis, the Product-Bats and Product-Gloves are considered as the components of one overall company’s Product E.

Determine the selling price per unit of Product E.

SellingpriceperunitofProductE]=(SellingpriceperunitofBats×salesmixofBats)+(SellingpriceperunitofGloves×salesmixofGloves)=($90perunit×40%)+($105perunit×60%)=$36perunit+$63perunit=$99perunit (1)

Determine the variable cost per unit of Product E

b.

To determine
the break-even sales (units) for Product-Bats and Product-Gloves.

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