Hello
guys it’s another beautiful day, here in Nigeria, the weather is great, very
calm and breezy am loving it!
Yea
so a quick run at what I have for you today, it’s quite a simple one, and here
it goes;
Bonny
Nigeria Limited has a total fixed cost of N7, 360,000. It produces and sells
two products, A and B. You are given the following details:
Product

Selling
Price

Variable
Cost

A

N200

N120

B

N300

N200

If
the products are sold in constant mix of 40% of A and 60% of B (in units),
determine the breakeven point in units.
A. 81,776 units
B. 80,000
units
C. 75,000 units
D. 69,500 units
E.
49,600 units
Now
how do we go about this, first you have to understand what we mean by
breakeven.
Breakeven point is the volume of sales
required in a period usually one year where the business unit neither makes a
profit or loss. When such situation occurs, we say the company has broken even.
The total contribution equals the fixed cost giving a zero profit.
Breakeven is a
component of costvolumeprofit analysis’
Where costvolumeprofit analysis’
is used to show how costs and profits change with changes in the volume of
activity.
Breakeven
is computed as;

Total Fixed Cost/ Contribution
per unit

Back to our question, when we talk about sales mix, it simply means the ratio in
which two products are sold.
To get the proportion of product mix, you
have to get the weightedaverage contribution margin per unit for the sales mix
as follows;
The products Contribution Margin per Unit × Products a Sales Mix Percentage
Like this
For product A = (80 × 40%) 32
For product B (100 × 60%) 60 =92
Product

A(N)

B(N)

Selling
Price

200

300

Variable
Cost

(120)

(200)

Contribution

80

100

7, 360,000/92
=80,000
I hope you find this educative enough. Well
enjoy your day as I plan to enjoy mine (who am I kidding, I’ll be working all
day!).
If you’ve got any questions I bet you
know how to get it across to me.
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