Break-Even Analysis: Multiproduct Environment

Angelo Hu started a company to produce and distribute natural fertilizers. Angelo's company sells two fertilizers that are wildly popular: Gro-it Big and Gro-it Fast.

Gro-it Big, the most popular among environmentally-minded consumers, commands the highest price and sells for $18 per 25-pound bag. Gro-it Big also requires additional processing and includes environmentally-friendly ingredients that increase its variable costs to $12 per bag. Gro-it Fast sells for $14 and has easily acquired ingredients that require no special processing. It has variable costs of $10 per bag. Hu's total fixed costs are $30,000. After some aggressive marketing efforts, Hu has been able to drive consumer demand to be equal for each fertilizer.

Required:

Calculate the number of bags of Gro-it Big that will be sold at break-even. If required, round your answer to nearest whole number. ___?___ bags

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1) First calculate weighted-average contribution margin per unit for calculating the break-even point with multiple products. 2) Selling price - variable costs = contribution margin x weight = weighted-average CM per unit. 3) Break-even (units) = fixed costs divided by weighted average CM per unit.