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:

1. What is the break-even point in units for AB-25, assuming that the planned 80%/20% sales mix is attained?
2. If the sales mix is attained, what is the profit when 150 000 units are sold?
3. 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.