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Horngren Chapter 3: GMAT Success and GRE Guarantee sales-mix break-even

ToolBreak-Even and Pricing
SourceHorngren, C. T., Datar, S. M., and Rajan, M. V. (2015). Cost Accounting: A Managerial Emphasis, 15th ed. Pearson, Boston. Chapter 3, sales mix.
LevelUndergraduate

Problem

Emma now sells GMAT Success at $200 with $120 variable cost and GRE Guarantee at $100 with $70 variable cost in a 3:2 mix (budget 60 and 40 units) against fixed costs of $4,500. Find the break-even in bundles, units of each product and revenue, and the operating income at the budgeted mix.

Inputs to Enter

  • Multi-product analysis: GMAT Success, 200, 120, 60 / GRE Guarantee, 100, 70, 40 (loaded by default); fixed costs 4,500
Open the Break-Even and Pricing tool

Answers

  • Bundle of 3 GMAT + 2 GRE: CM 3 × 80 + 2 × 30 = $300; break-even 15 bundles = 45 GMAT + 30 GRE, revenue 45 × 200 + 30 × 100 = $12,000
  • Weighted-average CM $60 per unit, break-even 75 units; operating income at 60 / 40 units = 6,000 − 4,500 = $1,500
  • Target profit $1,500 → 100 units (20 bundles, 60 GMAT)

Notes

The multi-product rows and fixed cost hold this example by default; choose the multi-product analysis in the Analysis select and press Submit.

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