Question

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will be the total contribution margin at the break-even point? A. $5,730,699 B. $7,740,000 C. $6,660,000 D. $6,720,000

Answer 1

C. $6,660,000

Step-by-step explanation:

Total contribution margin is determined as the difference between revenue and variable costs. At the break even point:

`Revenue = Variable\ Costs + Fixed\ Costs\\Revenue - Variable\ Costs = Contribution\ Margin=Fixed\ Costs`

Therefore, at the break even point, the total contribution margin must equal fixed costs, which are $6,660,000.

The answer is alternative C. $6,660,000

Answer 2

c) $6,660,000

Step-by-step explanation:

Let Sales = ‘ S ’

Sporting Goods sales = S x 65 % = 0.65 S

Sport Gear sales = S x 35 % = 0.35 S

Contribution of Goods = 0.65 S x 30 %

= 0.195 S

Contribution of Gears = 0.35 S x 50 %

= 0.175 S

Total Contribution Ratio = 0.370 S i.e. 37 %

Contribution Margin at Break Even point = $ 6,660,000

[ Because there is no profit at break even point]

Contribution Margin – Fixed Cost = Profit

Contribution Margin – 6,660,000 = 0

Contribution Margin = $ 6,660,000