Question

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: M N O Unit sales price $ 7 $ 4 $ 6 Unit variable costs 3 2 3 Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand): $ 20,000. $289,000. $400,000. $629,000. $740,000.

Answer 1

The answer is 629,000.

Step-by-step explanation:

• For each unit of M sold, the price is 7 and the cost is 3, so the contribution margin is 4;

• For each unit of N sold, the price is 4 and the cost is 2, so the contribution margin is 2;

• For each unit of O sold, the price is 6 and the cost is 3, so the contribution margin is 3;
• With the mix, 1 unit of sale contributes (contribution per mix) 3*M+1*N+2*O = 3*4+1*2+2*3 = 20

For covering the 340,000 of fixed costs, you have to sale 340,000/20 units. That's equal to 17,000 units.

Each unit of sales is equal to (price per mix) 7*M+4*N+6*O = 7*3+4*1+6*2 = 37. So, with 17,000 units, the total sales will be 17,000 * 37 = 629,000.