Question
Question 4: AB-25 is a top-selling electronic product. The company divides its customers into two groups: new customers and upgrade customers. Although the same physical
Question 4:
AB-25 is a top-selling electronic product. The company divides its customers into two groups: new customers and upgrade customers. Although the same physical product is provided to each customer group, sizeable differences exist in selling prices and variable marketing costs:
| New Customers | Upgrade Customers |
Selling price Variable costs Manufacturing Marketing Contribution margin | $200
$25 50 75 $? | $150
$20 25 45 $? |
The fixed costs of AB-25 are $16,000,000. The planned sales mix in units is 80% new customers and 20% upgrade customers.
Required:
- What is the break-even point in units for AB-25, assuming that the planned 80%/20% sales mix is attained?
- If the sales mix is attained, what is the profit when 150 000 units are sold?
- Show how the break-even point in units changes with the following customer mixes (a and b):
a. new 30%/upgrade 70%
b. new 60%/upgrade 40%
c. Comparing the break-even points in requirements a and b, is it always better for a company to choose the sales mix that yields the lower break-even point? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started