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Multi-product Breakeven Decision

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Multiproduct breakeven decision making. Evenkeel Corporation manufactures and sells one product- an infant car seat called Plumar- at a price of $50. Variable cost equals 20 per car seat. Fixed costs are $495,000. Evenkeel manufactures Plumar upon the receipt of orders from its customers. In 2003, it sold 30,000 units of Plumar. One of Evenkeel's customers, Glaston Corporation, has asked if in 2004 Evenkeel will manufacturer a different style of car seat called Ridex. Glaston will pay $25 for each unit of Ridex. The variable costs for Ridex are estimated to be $15 per seat. Evenkeel has enough capacity to manufacturer all the units of Plumar it can sell as well as the units of Ridex that Glaston wants and it will thus incur no additional fixed cost. Evenkeel estimates that in 2004 it will sell 30,000 units of Plumar (assuming the same price and variable cost in 2003) and 20,000 units of Ridex.

Andy Minton, the president of Evenkeel, checked the effect of accepting Glaston's offer on the breakeven revenue for 2004. using the planned sales mix for 2004, he was surprised to find that the revenues required to break even appeared to increase. He was not sure that his numbers were corrected, but if they were, Andy felt inclined to reject Glaston's offer. He ask for your advice.

1) Calculate the breakeven point in units and in revenue for 2003.
2) Calculate the breakeven point in units and in revenue for 2004 at the planned sales mix.
3) Explain why the breakeven points in revenues calculated in requirements 1 and 2 are different.
4) Should Andy accept Gaston's offer? Provide supporting computation.

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Solution Summary

A multi-product breakeven analysis is performed with a recommendations given based upon the calculations.

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See the attached file. There is one tab outlining the breakeven for 2003, one for the breakeven of 2004, and one tab explaning the difference in the breakeven sales dollars and advice for Andy.

The breakeven sales revenues increase from $825,000 to $900,000 because the Ridexes produce a significantly smaller
contribution margin than the Plumars ...

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