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Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
-What will be the total contribution margin at the break-even point?
A) $5,730,699
B) $6,660,000
C) $6,720,000
D) $7,740,000

Question

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Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
-What will be the total contribution margin at the break-even point?
A) $5,730,699
B) $6,660,000
C) $6,720,000
D) $7,740,000

Quizplus · Accepted Answer

At the break-even point, total contribution margin equals total fixed costs. 
Let X be the total sales revenue at the break-even point. 
The contribution margin for Sporting Goods is 0.3X × 0.65 = 0.195X, while for Sports Gear it is 0.5X × 0.35 = 0.175X. 
Therefore, the total contribution margin is 0.195X + 0.175X = 0.37X. 
We know that 0.37X = $6,660,000, so X = $18,000,000. 
Thus, the total contribution margin at the break-even point is 0.37X = 0.37 × $18,000,000 = $6,660,000.

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