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Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:

DVDs Equipment Sets
Price 8 25
Variable cost per unit 4 15
Total fixed cost is $78,840.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $19 and a variable cost per unit of $12. Total fixed cost must be increased by $26,280 (making total fixed cost $105,120). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

1. What is the sales mix of DVDs, equipment sets, and yoga mats? (2:1:4 , 2:4:1 , 1:1:4, 3:1:2, 4:1:2)
2. Compute the break-even quantity of each product.

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Answer:

Instructions are listed below.

Explanation:

Giving the following information:

DVDs:

Price= 8

Unitary variable cost= 4

Units sold= 13,500

Equipment:

Price= 25

Unitary variable cost= 15

Units sold= 4,500

Yoga mats:

Price= 19

Unitary variable cost= 12

Units sold= 9,000

The total fixed cost is $105,120

First, we need to calculate the sales mix for each product:

Total sales in units= (13,500 + 4,500 + 9,000)= 27,000 units

Sales mix:

DVDs= 13,500/27,000= 0.5

Equipment= 4,500/27,000= 0.17

Yoga Mats= 9,000/27,000= 0.33

To calculate the break-even quantity for each product, first, we need to calculate the break-even point in units for the whole company:

Break-even point (units)= Total fixed costs / (weighted average selling price - weighted average variable expense)

weighted average selling price= (selling price* weighted sales participation)

weighted average selling price= (8*0.5 + 25*0.17 + 19*0.33)= $14.52

weighted average variable cost= (variable cost* weighted sales participation)

weighted average variable cost= (4*0.5 + 15*0.17 + 12*0.33)= $8.51

Break-even point in units= 105,120/ (14.52 - 8.51)= 17,491 units

Now, for each product:

DVDs= 17,491*0.5= 8,746

Equipment= 17,491*0.17= 2,973

Yoga mats= 17,491*0.33= 5,772