Problem:
Calculation of break-even points based on different sales mix assumptions and a-product - abandonment decision
M Ltd manufactures three products which have the following revenue and costs (£2er unit).
|
Product 1
|
2 _
|
3
|
|
Selling price
|
2.92
|
1.35
|
2.83
|
|
Variable costs
|
1.61
|
0.72
|
0.96
|
|
Fixed costs:
|
|
|
|
|
Product specific
|
0.49
|
0.35
|
0.62
|
|
General
|
0.46
|
0.46
|
0.46
|
Unit fixed costs are based upon the following annual sales and production volumes (thousand units):
|
Product 1
|
2
|
3
|
|
98.2
|
42.1
|
111.8
|
Required:
(a) Calculate:
(i) the break-even point sales (to the nearest £ hundred) of M Ltd based on the current product mix
(ii) the number of units of Product 2 (to the nearest hundred) at the break-even point determined in (i) above.
(b) Comment upon the viability of Product 2.