Holts Corporation has two divisions: Xi and Sigma. Data from the most recent month appear below: The company's common fixed expenses total $78,840. The break-even in sales dollars for the company as a whole is closest to:
A) $487,491
B) $606,715
C) $466,018
D) $119,225

Question

Holts Corporation has two divisions: Xi and Sigma. Data from the most recent month appear below:  The company's common fixed expenses total $78,840. The break-even in sales dollars for the company as a whole is closest to:
A) $487,491 
B) $606,715 
C) $466,018 
D) $119,225

Quizplus · Accepted Answer

To find the break-even point for the company as a whole, we need to first calculate the contribution margin ratio for each division.

For division Xi:

Contribution margin ratio = (Total sales - Variable expenses) / Total sales 
= (($335,000 - $147,000) - $42,400) / $335,000 
= $145,600 / $335,000 
= 0.4358 or 43.58%

For division Sigma:

Contribution margin ratio = (Total sales - Variable expenses) / Total sales 
= (($487,000 - $299,600) - $28,800) / $487,000 
= $158,600 / $487,000 
= 0.3253 or 32.53%

Next, we can use the formula:

Break-even point = Common fixed expenses / Weighted average contribution margin ratio

The weighted average contribution margin ratio is calculated by weighting each division's contribution margin ratio by its proportion of total sales.

Weighted average contribution margin ratio = (Division Xi sales / Total sales) x (Contribution margin ratio for Xi) + (Division Sigma sales / Total sales) x (Contribution margin ratio for Sigma)

= ($335,000 / $822,000) x 0.4358 + ($487,000 / $822,000) x 0.3253 
= 0.2035 + 0.2415 
= 0.4450 or 44.50%

Plugging in the numbers:

Break-even point = $78,840 / 0.4450 
= $177,369.67

Therefore, the closest answer choice is B) $606,715

Holts Corporation Has Two Divisions: Xi and Sigma