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Megarock want to start producing drum kits
Megarock want to start producing drum kits. The estimated sales projections are as follows
Guitars Drumkits
Estimated Sales 6500 guitars 3250 drumkits
Sales Price $650 $1,500
Variable Costs $210 $750
Total Fixed Costs $3,400,000
a) What is the Weighted Average Contribution Margin? (Round to the nearest cent)
a) What would be the breakeven units (In total and per product)
Expert Solution
| a) Computation of weighted average contribution margin per unit: | |||
| Particulars | Guitars | Drumkits | Total |
| Selling price per unit | $650.00 | $1,500.00 | |
| Variable cost per unit | $210.00 | $750.00 | |
| Contribution margin per unit | $440.00 | $750.00 | |
| Sales mix | 2.00 | 1.00 | 3.00 |
| Weighted Average Contribution Margin per Unit | $880.00 | $750.00 | $1,630.00 |
| a) Computation of weighted average contribution margin per unit: | |||
| Particulars | Guitars | Drumkits | Total |
| Selling price per unit | 650 | 1500 | |
| Variable cost per unit | 210 | 750 | |
| Contribution margin per unit | =650-210 | =1500-750 | |
| Sales mix | =6500/3250 | =3250/3250 | =2+1 |
| Weighted Average Contribution Margin per Unit | =440*2 | =750*1 | =880+750 |
b) Computation of Breakeven Point in Units in Total:
Breakeven Point in Units in Total = Fixed Cost/Weighted Average Contribution Margin per Unit
= $3,400,000/$1,630
= 2,085.89 or 2,086 units
Computation of Breakeven Point in Units per Product:
Guitars = 2,086*2/3 = 1,390.59 or 1,391 units
Drumkits = 2,086*1/3 = 695.30 or 695 units
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