Question

Both Apple and Google sell electronic devices, and each of these companies has a different product mix.

Required:
a. Assume the following data are available for both companies. Compute each company's break-even point in unit sales. (Each company sells many devices at many different selling prices, and each has it's own variable costs. This assignment assumes an average selling price unit and average cost per items.)

Apple Google
Average selling price per unit sold.......... $550 per unit $470 per unit
Average variable cost per unit sold......... $250 per unit $270 per unit
Total fixed costs (S in millions)............... $36,000 $10,000

b. If unit sales were to decline, which company would experience the larger decline in operating profit? Explain.

Answer 1

Answer:

Apple contribution margin

$    300 per unit

Apple Break even point:

$    120 units

Google contribution margin

 $   200

BEP

 $     50

Explanation:

$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}$

Where:

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

Apple contribution margin

550 - 250 = 300 per unit

Apple Break even point:

36,000 / 300 = 120 units

Google contribution margin

470 - 270 = 200

BEP

10,000 /  200 = 50