Reference: Self

Asset ID: 5330121

Mapping: How to Calculate the Break-Even Point - Definition & Formula
Question:
Complete Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that
measures distance. Shown below are unit cost and sales data.

Pairs of
Pairs of Shoes Range-Finder
Gloves

Unit sales price $102 $28 $240

Unit variable costs 58 10 200

Unit contribution
$44 $18 $40
margin

Sales mix 30% 40% 30%

Fixed costs are $583,200.

a) Calculate weighted-average unit contribution margin.
b) Compute the break-even point in units for the company.

Answer:
Context:
Contribution margin:
The difference between the sales price of the product sold by the company and the variable
cost incurred by company in manufacturing such product is known as contribution margin. It
is used for calculating the break-even point.
Answer and Explanation:
Suppose 100 units are sold:
(a) Weighted average contribution margin:
| Particular | Per unit contribution margin | x | Sales mix units | = | Total contribution margin
| Pair of shoes | $44 | x | 30 | = | $1,320
| Pair of gloves | $18 | x | 40 | = | $720
| Range-finder | $40 | x | 30 | = | $1,200
| | | | | Total | $3,240
[{MathJax fullWidth=’false’
\begin {align*}
\rm\text{Weighted average contribution margin}&=\dfrac{\rm\text{Total contribution
margin}}{\rm\text{Total units sold}}\\&=\dfrac{\$3,240}{100}\\&=\$32.40
\end{align*}
}]

b) Break-even point in units:

[{MathJax fullWidth=’false’
\begin {align*}
\rm\text{Break-even point}&=\dfrac{\rm\text{Fixed cost}}{\rm\text{Weighted average
contribution margin}}\\&=\dfrac{\$583,200}{\$32.40}\\&= 18,000\;\rm\text{units}
\end{align*}
}]