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Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point

 

Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contribution of sales among various products sold by a firm. Assume that the sales of Jameson Ltd. for a typical year are as follows: Product X Z Total Units Sold Sales Mix 75% 25% 100% Product X Z 17,250 5,750 23,000 Assume the following unit selling prices and unit variable costs: Selling Price Per Unit $90 $150 Variable Cost Per Unit $70 $105 Contribution $20 $45 Fixed costs are $425,000 per year. Assume that the sales mix, expressed in terms of relative physical units sold, is constant as sales volume changes. Required: 1) Determine the breakeven point in total units and for this breakeven point, calculate the number of units of X and Z that must be sold. Use the weighted-average contribution margin approach and round solution up to the next whole number. 2) Determine the breakeven point in total units and the breakdown of the total breakeven point into sales (in units) of each of the two products, X and Z. Use the sales basket approach. (Assume that each "basket" consists of four units in X and one unit of Z.) 3) Determine the overall breakeven point in terms of sales dollars based on the weighted-average contribution margin ratio (CMR). Hint: The weights for calculating the weighted-average CMR are based on relative sales dollars, not units, of the two products. Break down the total sales dollars breakeven point into sales dollars for product X and sales dollars for product Z. 4) Explain the following statement: "For the multiproduct firm, there is no breakeven point independent of the sales-mix assumption."

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