Question: Most businesses sell several products at varying
Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among various products sold by a firm. Assume that the sales of Jordan, Inc., for a typical year are as follows:
Assume the following unit selling prices and unit variable costs:
Fixed costs are $400,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes.
Required:
1. Determine the breakeven point in total units and, for this breakeven point, calculate the number of units of A and B that must be sold. Use the weighted-average contribution margin approach and round the solution up to the next whole number.
2. Use the Goal Seek function in Excel to determine the overall breakeven point (in units) for the company.
3. Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio (CMR). Break down the total sales dollars breakeven point into sales dollars for product A and sales dollars for product B.
4. Explain the following statement: “For the multiproduct firm, there is no breakeven point independent of the sales-mix assumption.â€
5. Assume the original facts except that now fixed costs are expected to be $40,000 higher than originally planned. How does this expected increase in fixed costs affect the breakeven point in units? How does the percentage change in the breakeven point compare to the percentage increase in fixed costs? What general conclusion might you draw on the basis of these calculations?
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