Question

Mayfield Company sells two products, Blue models and Plaid models. Blue models sell for $45 per unit with variable costs of $30 per unit. Plaid models sell for $50 per unit with variable costs of $25 per unit. Total fixed costs for the company are $19,950. Mayfield Company typically sells two Blue models for every three Plaid models. Required: What is the breakeven point in total units

Answer 1

Break even point in total units is 950 units

Step-by-step explanation:

The break even point in total units is the composite break even point considering both the products. This will give us one overall break even point for the company. The break even point in units is the number of units that must be sold in order for the total revenue to be equal to total costs.

To calculate the over all break even in units, we need to divide the fixed costs by the weighted average contribution per unit.

Weighted average contribution per unit = weight of product A in sales mix * contribution of product A + weight of product B in sales mix * contribution of product B

Sales mix = 2 + 3 = 5

Blue = 2 / 5 = 0.4

Plaid = 3 / 5 = 0.6

Weighted average contribution per unit = 2/5 * (45 - 30) + 3/5 * (50 - 25)

Weighted average contribution per unit = $21 per unit

Break even point in units = 19950 / 21 = 950 units