Managerial Accounting Assignment on Break-Even Analysis and Sales Mix

This assignment covers break-even analysis and sales mix of three models of brewing machines with different special features. It includes calculation of break-even point, total sales dollars needed for each product, break-even point in total units, number of office brewer units sold for overall break-even point sales, impact of new advertising campaign on sales, and number of customers who would purchase European Deluxe model rather than Office model.

MA A R A ACCN GE I L OUNTING
Assignment
Student ameN
[Pick the date]

The main information about the three models of brewing machines with different special features
are summarised in the table and is highlighted below:
Model 1: Home Brewer
This brewer machine has significantly large sized water reservoir that has the tendency to make
20 cup of coffee.
Model 2: Office Brewer
This brewer machine has number of brewing sizes which provides consistent taste.
Model 3: European Deluxe Brewer
This brewer machine has different type of filtering devices.
Question 1
Break-even point of the company ($ sales)
 Total sale of the company
¿ ∑ (Total sale volume × Per unit sale price)
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¿ ( 150 ×12000 ) + ( 200 ×30000 )+ (300 × 6000 )
¿ 9,600,00 0
 Total variable cost of the company
¿ ∑ (Total sale volume × Per unit variable cost )
¿ ( 120 ×12000 ) + ( 140 ×30000 )+ ( 180 × 6000 )
¿ 6,720,00 0
 Contribution margin ratio for the company
¿ Contribution margin
Total sale of the company
¿ 9600000−6720000
9600000
¿ 0.30
 Break-even point of the company
Break−even point= ¿ costs annually
Contribution marginratio
¿ 1500000
0.3
¿ 5,000,000
Hence, the break-even point of the company is $5,000,000.
Question 2
Total sales dollars needed for each of the product at the calculated break-even point (Detscher,
2016).
2

Sales mix of Home Brewer Machine ¿ 12000
12000+ 30000+6000 =25 %
Sales mix of Office Brewer Machine ¿ 30000
12000+ 30000+6000 =62.5 % 63 %
Sales mix of European Deluxe Brewer
Machine
¿ 6000
12000+30000+6000 =12.5 % 13 %
Break-even sale dollars for each of the sales mix of brewer machine is calculated below:
Break-even point of the company is $5,000,000
Break-even sale dollars of Home Brewer Machine ¿ $ 5,000,000× 25 %=$ 1,250,000
Break-even sale dollars of Office Brewer Machine ¿ $ 5,000,000× 62.5 %=$ 3,125,000
Break-even sale dollars of European Deluxe Brewer
Machine
¿ $ 5,000,000× 12.5 %=$ 625,000
Question 3
Break-even point of the company in total units =?
Weighted average contribution margin (per unit) (Ross, et.al., 2014) = Contribution margin *
Sale mix of the model
Weighted contribution margin for Home
Brewer
¿ $ 30× 25 %=7.50
Weighted contribution margin for Office
Brewer
¿ $ 60 ×62.5 %=$ 37.50
Weighted contribution margin for European
Deluxe
¿ $ 120× 12.5 %=$ 15.00
Break-even point of the company (Payne∧Gullifer , 2015)= 1500000
7.50+37.50+15 =25,000
Hence, the break-even point of the company would be 25000 units.
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Question 4
Number of office Brewer units that has sold next year for the overall break-even point sales =?
Assumption
 No change in the unit sales of Home Brewer or European Deluxe
 Same unit sale price for each of the given model
 Same variable cost for each of the given model
 No change in the yearly fixe cost
It is apparent from the above that the overall break-even point sale comes out to be
$5,144,231.50 which is higher than the previous break-even point i.e. $5,000,000. It is because
the sale mix in case of each product has changed with respect to increase in the sold unit for any
of the one product (Ross, et.al., 2014).
Question 5
Company has decided to start a new advertising campaign to increase the overall consumer
familiarity about the products of the company.
Total cost of the campaign (year-long) = $150,000
Increase in the overall sales due to new advertising campaign =?
Assumption
4

 No change of the current product mix
Weighted average contribution margin = 0.3
¿ 150000
0.3 =500,000
Hence, it can be seen that contribution margin comes out to be 30%. It is indication of the fact
that weighted contribution margin is 30% of the advertisement cost. Therefore, 30% increase of
the sale needs to be taken into account to justify the new advertisement campaign.
Question 6
Number of customers who would purchase European Deluxe model rather than Office model =?
Assumption
New advertising campaign would not create any impact on the total sale of Home Brewer model.
Advertising cost ¿ 150000
60 =2500
Hence, it can be said that in regards to justify the new advertising, 2500 customers would
purchase European Deluxe model rather than buying the Office Basic model (Detscher, 2016).
Question 7
Company has decided to add a new product (Office Plus) in their current product line.
Number of Office Plus that would be sold based on the given information =?
5

Per unit sale price per unit $250
Per unit variable cost $160
Fixed costs annually $102,000
Annual reduction in the sale of Office and
European Deluxe model
10%
Assumption
 No reduction in the sale of Home Brewer model
Calculation of net income for both the case is highlighted below (Payne & Gullifer, 2015):
Hence, it can be said that 3934 units of the Office Plus model needs to be sold.
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References
Detscher, S. (2016). Corporate finance and the theory of the firm. Germany: GRIN Verlag
GmbH.
Payne, J., & Gullifer, L. (2015). Corporate finance law: Principles and policy (4th ed.). Oxford,
United Kingdom: Hart Publishing.
Ross, S. A., Trayler, R., & Bird, R. (2014). Essentials of corporate finance. Sydney, Australia:
McGraw-Hill Australia.
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