Question

Lamar & Co., makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows:
Plain Fancy
Unit selling price $ 25.00 $ 36.00
Variable cost per unit 13.00 20.00
Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
Assuming that the sales mix remains constant, compute the total number of units of each product that the company must sell to break even.
Show all computations.

Answer 1

Answer:

Results are below.

Explanation:

First, we will calculate the weighted average contribution margin:

Weighted average contribution margin= (weighted average selling price - weighted average unitary variable cost)

Weighted average contribution margin= (0.6*25 + 0.4*36) - (0.6*13 + 20*0.4)

Weighted average contribution margin= $13.6

Now, the break-even point for the whole company:

Break-even point (units)= Total fixed costs / Weighted average contribution margin

Break-even point (units)= 45,000 / 13.6

Break-even point (units)= 3,309

Now, for each product line:

Plain= 0.6*3,309= 1,985

Fancy= 0.4*3,309= 1,324