Chartz 1-2-3 is a top-selling electronic spreadsheet product. Chartz is about to release version 5.0. It divides its customers into two groups: new customers and upgrade customers (those who previously purchased Chartz 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs:

The fixed costs of Chartz 1-2-3 5.0 are $10,500,000. The planned sales mix in units is 60% new customers and 40% upgrade customers.

1.	What is the Chartz 1-2-3 5.0 breakeven point in units, assuming that the planned 60%/40% sales mix is attained?
2.	If the sales mix is attained, what is the operating income when 250,000 total units are sold?
3.	Show how the breakeven point in units changes with the following customer mixes: a. New 50% and upgrade 50% b. New 90% and upgrade 10% c. Comment on the results.

New Customers Upgrade Customers

Selling price $220 $130

Variable costs

Manufacturing $20 $20

Marketing 55 75 15 35

Contribution margin $145 $95

Requirement 1. What is the Chartz 1-2-3 5.0 breakeven point in units, assuming that the planned 60% / 40% sales mix is attained?Begin by determining the sales mix. For every bundle, 3 units are sold to new customers, and 2 units are sold to customer who bought upgrades.Determine the formula used to calculate the breakeven point when there is more than one product sold, then enter the amounts in the formula to calculate the breakeven point in bundles.

Fixed costs

Contribution margin per bundle

=

Breakeven point in bundles

$10,500,000

$625

=

16,800

The breakeven point is

50,400

units for new customers and

33,600

units for upgrade customers.

Requirement 2. If the sales mix is attained, what is the operating income when 250,000 units are sold?

	New customers	Upgrade customers	Total
Units sold
Total revenue
Total variable costs
Contribution margin
Fixed costs
Operating income