Question

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $500 and has a unit contribution margin of $200; the Adult model sells for $930 and has a unit contribution margin of $372; and the Recreational model sells for $1,400 and has a unit contribution margin of $560. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $5,680,000, calculate the firm's break-even point in total sales dollars.

Answer 1

$14,200,000

Step-by-step explanation:

The computation of the firm break even point in total sales dollars is shown below:

Particulars Youth Adult Recreational

Sales mix

ratio 0.25 0.45 0.30

(5:9:6)

Contribution

margin $200 $372 $560

Weighted

average CM 50 167.4 168

Selling price $500 $930 $1,400

Weighted

average sales 125 418.50 420

Weighted average

sales 963.50

Weighted average

CM 385.40

CM ratio 40% (385.40 ÷ 963.50)

Now the break even point in sales dollars is

= Fixed cost ÷ contribution margin ratio

= $5,680,000 ÷ 40%

= $14,200,000