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Multiple-Product Break Even Analysis

The document describes a company, Florida Favorites, that produces toy alligators and dolphins. It has fixed costs of $1.29 million per year and variable costs and sales prices for each product. It provides the break-even analysis for two scenarios - when alligators and dolphins are produced at 140,000 and 60,000 units respectively, and when they are produced at 60,000 and 140,000 units respectively. The break-even units are 100,000 total for the first scenario and 91,489 total for the second scenario, with the unit allocation between products depending on the given sales mix. The total break-even units are different as the weighted contribution per unit is higher in the second scenario.

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Monther Baqoush
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646 views3 pages

Multiple-Product Break Even Analysis

The document describes a company, Florida Favorites, that produces toy alligators and dolphins. It has fixed costs of $1.29 million per year and variable costs and sales prices for each product. It provides the break-even analysis for two scenarios - when alligators and dolphins are produced at 140,000 and 60,000 units respectively, and when they are produced at 60,000 and 140,000 units respectively. The break-even units are 100,000 total for the first scenario and 91,489 total for the second scenario, with the unit allocation between products depending on the given sales mix. The total break-even units are different as the weighted contribution per unit is higher in the second scenario.

Uploaded by

Monther Baqoush
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Multiple-product break even analysis Florida Favorites Company produces toy alligators and toy dolphins.

Fixed costs are $1,290,000 per year. Sales revenue and variable costs per unit are as follow: Alligators Sales Price $20 Variable Costs 8 Questions: A. Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per year. Assuming the sales mix stays constant how many alligators and Dolphins must the company sell to break even? B. Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year? C. Explain why the total number of toys needed to break even in (a) is the same as or different from the number in (b). Solution: A Units Sales price per unit Variable Cost per unit Sales(A) Variable cost(B) Contribution Margin (A-B) Less :Fixed cost Net income 140000 $20 60000 $25 200000 Dolphins $25 10

$8 $10 Alligators Dolphins TOTAL $2,800,000 $1,500,000 $4,300,000 $1,120,000 $600,000 $1,720,000 $1,680,000 $900,000 $2,580,000 $1,290,000 $1,290,000

Weighted Average Contribution margin: Total Contribution / Total units = $2580000/200000 = $12.90 Breakeven Point = Fixed Cost / Weighted Average Contribution

= $1,290,000 / $12.90 = 100000 units Allocating TOTAL UNITS to each product based on EXPECTED UNITS PROPORTION= 14:6 Alligators to be produced for Breakeven =100000*14/20 = 70000 units Dolphins to be produced for Breakeven =100000*6/20 = 30000 units So, Florida Favorites Company has to produce 70000 toy alligators and 30000 toy dolphins for breakeven. B. Units Sales price per unit Variable Cost per unit Sales(A) Variable cost(B) Contribution Margin(A-B) Less :Fixed cost Net income 60000 $20 140000 $25 200000

$8 $10 Alligators Dolphins TOTAL $1,200,000 $3,500,000 $4,700,000 $480,000 $1,400,000 $1,880,000 $720,000 $2,100,000 $2,820,000 $1,290,000 $1,530,000

Weighted Average Contribution margin: Total Contribution / Total units = $2820000/200000 = $ 14.10 Breakeven Point = Fixed Cost / Weighted Average Contribution = $1,290,000 / $14.10 = 91489 units Allocating TOTAL UNITS to each product based on EXPECTED UNITS PROPORTION= 6:14 Alligators to be produced for Breakeven =91489*6/20 = 27446 units Dolphins to be produced for Breakeven =91489*14/20 = 64042 units So, Florida Favorites Company has to produce 27446 toy alligators and 64042 toy dolphins for breakeven.

C. The total number of toys needed to break even in (a) is different from the number in (b) and lower also. This is due to the reason as weighted contribution

per unit has increased; fixed cost spreads over greater number of dollars letting the breakeven to be achieved early. Perhaps (b) sales mix is more efficient and gives the firm a hint to produce toy dolphins more as contribution per unit of a toy dolphin is also higher.

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