- Whittier Company is offering two lawn mower models: a mulching mower for $400 and a riding mower for $800. Marketing expects to sell 1,200 mulching and 800 riding mowers.
- The break-even points are 400 units for the mulching mower and 200 units for the riding mower.
- The sales mix can be expressed as a ratio of units (1,200:800 or 3:2) or as a percentage of total revenue (mulching mower: 42.86%, riding mower: 57.14%).
- For the company overall, the break-even point is 154 packages, requiring sales of 462 mulching m
- Whittier Company is offering two lawn mower models: a mulching mower for $400 and a riding mower for $800. Marketing expects to sell 1,200 mulching and 800 riding mowers.
- The break-even points are 400 units for the mulching mower and 200 units for the riding mower.
- The sales mix can be expressed as a ratio of units (1,200:800 or 3:2) or as a percentage of total revenue (mulching mower: 42.86%, riding mower: 57.14%).
- For the company overall, the break-even point is 154 packages, requiring sales of 462 mulching m
- Whittier Company is offering two lawn mower models: a mulching mower for $400 and a riding mower for $800. Marketing expects to sell 1,200 mulching and 800 riding mowers.
- The break-even points are 400 units for the mulching mower and 200 units for the riding mower.
- The sales mix can be expressed as a ratio of units (1,200:800 or 3:2) or as a percentage of total revenue (mulching mower: 42.86%, riding mower: 57.14%).
- For the company overall, the break-even point is 154 packages, requiring sales of 462 mulching m
Whittier Company has decided to offer two models of lawn mowers:
a mulching mower to sell for $400 and a riding mower to sell for $800. The Marketing Department is convinced that 1,200 mulching mowers and 800 riding mowers can be sold during the coming year. The controller has prepared the following projected income statement based on the sales forecast:
The direct fixed expenses are those fixed costs that can be traced to each product and would be avoided if the product did not exist. The common fixed expenses are the fixed costs that are not traceable to the products and would remain even if one of the products was eliminated.
Break-Even Point in Units For two products, there are two unit contribution margins. The mulching mower has a contribution margin per unit of $75 ($400 $325), and the riding mower has one of $200 ($800 $600). One possible solution is to apply the analysis separately to each product line. It is possible to obtain individual break- even points when income is defined as product margin. Breakeven for the mulching mower is as follows: Mulching mower break-even units : Fixed cost/(Price Unit variable cost) = $30,000/$75 = 400 units Riding mower break-even units : Fixed cost/(Price Unit variable cost) = $40,000/$200 = 200 units Thus, 400 mulching mowers and 200 riding mowers must be sold to achieve a break-even product margin. Determining the Sales Mix Sales mix is the relative combination of products being sold by a firm. The sales mix can be measured : In units sold or in proportion of revenue. By the percent of total revenue contributed by each product.
Find sales mix in units sold or in proportion of revenue : For example, if Whittier plans on selling 1,200 mulching mowers and 800 riding mowers, then the sales mix in units is 1,200:800. Usually, the sales mix is reduced to the smallest possible whole numbers. Thus, the relative mix, 1,200:800, can be reduced to 12:8 and further to 3:2. That is, for every three mulching mowers sold, two riding mowers are sold. Find sales mix By the percent of total revenue contributed by each product : The mulching mower revenue is $480,000 ($400 1,200), and the riding mower revenue is $640,000 ($800 800). The mulching mower accounts for 42.86 percent of total revenue, and the riding mower accounts for the remaining 57.14 percent.
Given the package contribution margin, the fundamental break- even equation can be used to determine the number of packages that need to be sold to breakeven. From Whittiers projected income statement, we know that the total fixed costs for the Company are $96,250. Thus, the break-even point is: Break-even packages = Fixed cost/Package contribution margin = $96,250/$625 = 154 packages Sales Mix and CVP Analysis Whittier must sell 462 mulching mowers (3x154) and 308 riding mowers (2x154) to break even. An income statement verifying this solution is presented in this table : Sales Dollars Approach The break-even point in sales dollars implicitly uses the assumed sales mix but avoids the requirement of building a package contribution margin. No knowledge of individual product data is needed. The computational effort is similar to that used in the single- product setting.