Toy craft produces toy alligators and toy dolphins. Fixed costs are Rs 1,290,000 per year. Sales revenue and variable costs per unit are as follow:
| Particulars | Alligators (in Rs) | Dolphins (in Rs) |
| Sales price | 20 | 25 |
| Variable Price | 8 | 10 |
Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per year (Sales mix percentage 6:14). Assuming the sales mix stays constant, answer the following question.
What is the total number of units of all toys (including dolphins and alligators) for break even points?
Answer & explanation
Correct answer: option 4
| Particulars | Alligators (in Rs) | Dolphins (in Rs) | Total |
| Total Units | 60,000 | 1,40,000 | 2,00,000 |
| Sales price (Rs) | 20 | 25 | |
| Variable Price | 8 | 10 | |
| Sales | 12,00,000 | 35,00,000 | 47,00,000 |
| Variable Cost | 4,80,000 | 14,00,000 | 18,80,000 |
| Contribution Margin in Rs (Sales-Variable Cost) | 7,20,000 | 21,00,000 | 28,20,000 |
| Less Fixed Cost | 12,90,000 | ||
| Net Income | 15,30,000 |
Weighted Average Contribution Margin= Total Contribution/ Total Units
28,20,000/2,00,000=Rs 14.10
Break Even Point= Fixed Cost/Weighted Average Contribution =12,90,000/14.10=91,489 Units
Allocating total units to each products based on Expected Units Proportion=6:14
Alligators to be produced for breakeven= 91,489*6/20=27446 Units
Dolphins to be produced for breakeven=91,489*14/20=64,042 Units
So the company has to produce 27446 toy alligators and 64042 toy dolphins for breakeven.