ABC Company sells three products with exactly the same price

ABC Company sells three products with exactly the same price of £20 a unit. However, A\'s variable cost is at 40%, B\'s at 50% and C\'s at 60%. Fixed costs amount to £18,000. An additional £9,000 need to be spent on advertising to boost sales. Sales mix is at 500, 1,500, and 3,000 units for A, B, and C respectively. Sales in GBP for B at breakeven amounts to

A) £18,000

B) £27,000

C) £36,000

D) £45,000

E) none of the above

Solution

Sales mix percentage: A 10% =500/(500+1500+3000) B 30% =1500/(500+1500+3000) C 60% =3000/(500+1500+3000) Weighted average CM ratio = (1-0.4)*10%+(1-0.5)*30%+(1-0.6)*60%= 45% Break even sales = (18000+9000)/45%= $60000 Sales in GBP for B at breakeven = 60000*30% = $18000 Option A is correct