A firm is selling two products, chairs and barstools, each at $50 per unit. Chairs have a variable cost of $25 and barstools $20. Fixed cost is $20,000.
If the sales mix is 1:4 (1 chair for every 4 bar stools) what is the break even point in sales? In units of chairs and barstools?
What is the best way to calculate break even point here? I have two different solutions that check out?
using a weighted approach
BEP Sales =
Your second solution hits the correct answers. Having a fixed mix of 1:4 lets you think of this one in terms of 'packages', with each package consisting of 1 chair and 4 stools. Each package has a unit sales price of 250, and a unit variable cost of 105.
I haven't vetted your first solution in detail, but at a glance it looks like you're trying to weight the chairs:stools at 25:75 instead of 20:80. Fix your weights accordingly and both of your approaches will probably agree.
Oct 19th 2009, 12:41 PM
Aweseome, that did it.
Units = 689.6552
Charis=units*.20 = 137.31
Barstools = units*.80=551.72