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Mowing Motors sells two different products. Here are the monthly revenues and costs: Product A Sales quantity: 12,000 units Price per unit: $5.50 Variable costs

Mowing Motors sells two different products. Here are the monthly revenues and costs:

Product A

  • Sales quantity: 12,000 units
  • Price per unit: $5.50
  • Variable costs per unit: $1.15

Product B

  • Sales quantity: 18,000 units
  • Price per unit: $3.00
  • Variable costs per unit: $0.90
  • Total fixed costs: $225,000

Assuming the sales mix stays the same, what is the breakeven point for this company in units?

  • Product A: 30,000; Product B: 45,000

    Correct!

  • Product A: 16,000; Product B: 24,000

  • Product A: 15,000; Product B: 22,500

  • Product A: 40,000; Product B: 60,000

    Incorrect.

The correct answer is calculated as follows:

Total
Sales $66,000 $54,000 $120,000
Variable cost (13,800) (16,200) (30,000)
Contribution margin $52,200 $37,800 $90,000
Contribution margin ratio: 75%
Breakeven sales: $225,000/75.0% = $300,000
(With same sales mix) A B Total
Breakeven sales $165,000 $135,000 $300,000
Breakeven variable cost (34,500) (40,500) (75,000)
Contribution margin $130,500 $94,500 $225,000
Fixed cost (225,000)
Profit $0
Breakeven units 30,000 45,000

Alternate solution:

The sales mix is the relative proportion of total units sold (or total sales dollars) that is represented by each of a companys products. In this problem, the sales mix ratio is 2:3 (12,000:18,000). Therefore, a basket containing these number of products would have a sales price of (2 $5.50) + (3 $3.00) = $20.00 and a variable cost of (2 $1.15) + (3 $0.90) = $5.00. Hence, the breakeven calculation would be like this:

$20x $5x $225,000 = 0

$15x = $225,000

x = 15,000 baskets

Recall that each basket contains two units of Product A and three units of Product B. Therefore, using the mix ratio, you know that Mowing Motors needs to sell 30,000 units of Product A and 45,000 units of Product B.

Can someone explain this? Where did the breakeven sales comes from?

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