A business sells 3 products with the following information.Product Sales Price Variable Cost Sales mixHigh end t-shirt 25 8 1Budget t-shirt 10 2 10Moderate t-shirt 15 4 5Fixed costs are $2500 per month.What is the total number of break even units
Question
A business sells 3 products with the following information.Product Sales Price Variable Cost Sales mixHigh end t-shirt 25 8 1Budget t-shirt 10 2 10Moderate t-shirt 15 4 5Fixed costs are $2500 per month.What is the total number of break even units
Solution
To calculate the total number of break-even units, we first need to calculate the weighted average contribution margin per unit.
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Calculate the contribution margin per unit for each product:
- High end t-shirt: 8 = $17
- Budget t-shirt: 2 = $8
- Moderate t-shirt: 4 = $11
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Calculate the weighted average contribution margin per unit:
- High end t-shirt: 17
- Budget t-shirt: 80
- Moderate t-shirt: 55
- Total contribution margin = 80 + 152
- Weighted average contribution margin per unit = 152 / 16 = $9.5
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Calculate the total number of break-even units:
- Break-even units = Fixed costs / Weighted average contribution margin per unit
- Break-even units = 9.5 = approximately 263 units
So, the business needs to sell approximately 263 units to break even.
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