Question

Sheridan Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Sheridan incurs $5920000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is a. $13767442. b. $16000000. c. $2190400. d. $14800000.

Answer 1

Break even point = $16000000

Step-by-step explanation:

given data

sales mix for Sporting Goods = 65%

sales mix for Sports Gear = 35 %

fixed costs = $5920000

contribution margin ratio = 30%

Sports Gear = 50 %

to find out

break-even point

solution

we know that Break even point is

Break even point =
`(Fixed costs)/(Weighted average contribution margin ratio)` ........................1

here

Weighted average contribution margin ratio is

Weighted average contribution margin ratio = Contribution margin ratio × weight ...........................2

Weighted average contribution margin ratio = 30 × 65% + 50 × 35%

Weighted average contribution margin ratio = 37%

so from equation 1

Break even point =
`(Fixed costs)/(Weighted average contribution margin ratio)`

Break even point =
`(5920000)/(0.37)`

Break even point = $16000000