Cheryl Montoya picked up the phone and called her boss Wes C

Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: Wes, I\'m not sure how to go about answering the questions that came up at the meeting with the president yesterday. What\'s the problem?\" trouble figuring them out at 8 00 sharp in time for the follow-up meeting at 9:00 North Carolina. Data concerning these products appear below The president wanted to know the break-even point for each of the company\'s products, but I am having I\'m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in VelcroMetalNylon Normal annual sales volume 96,000 198,000 293.000 $1,00 $.60 Unit selling price Variable expense per unit $2.30 S1.10 $1.80 $1.20 Total fixed expenses are $271,000 per year All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories Required 1. What is the company\'s over-all break-even point in dollar sales? (Round CM ratio to 4 decimal places and final answer to the nearest whole dollar.) Break-even point in dollar sales

Solution

Question 1: Break even point in dollar sales is calculated by using the formula: Fixed Cost / weighted Contribution Margin

Total fixed cost of company is $271,000.

Contribution of all the three products is calculated as follows:

Sales mix ratio = 96000:198000:293000 = 96:198:293

Weighted Contribution margin = Total contribution margin/Total sales

i.e., [(1.2x96) + (0.6x198) + (0.4x293)] / [(2.3x96) + (1.8x198) + (1x293)] = 351.2/870.2 = 0.4036 i.e.,40.36%

Break even point in dollar sales = $271000/0.4036 = $671457.

Question 2: Break even point in unit sales is calculated by formula Fixed cost/weighted average Contribution margin per unit

Weighted average Contribution margin per unit = [(1.2x96) + (0.6x198) + (0.4x293)] / 587 = 351.2/587 = $0.5983

Break even point in units = $271000/0.5983 = 452,950

Break even point of Velcro = 452950x96/587 = 74077 units

Break even point of Metal = 452950x198/587 = 152784 units

Break even point of Nylon = 452950x293/587 = 226089 units

Question 2(b) : When a company sells its break even sales then profit it acquires is zero.

PS: Please use \"Thums Up\" if you are contented with my solution and presentation.

Particulars	Velcro	Metal	Nylon
A)Selling price per unit	$2.3	$1.8	$1
B)Variable expense per unit	$1.1	$1.2	$0.60
C)Contribution per unit(A-B)	$1.2	$0.6	$0.4
D)Annual Sales volume	96000	198000	293000
E)Contribution(CxD)	$115200	$118800	$117200
F) Contribution margin ratio	0.5217	0.3333	0.4