To determine the break-even point for McDale Incorporated, we need to calculate the contribution margin for each product and then apply that to the company’s fixed expenses. The break-even point is where total contribution margin equals fixed expenses.

Step 1: Calculate Contribution Margin for Each Product

The contribution margin (CM) for each product is calculated by subtracting the variable expenses from the sales revenue.

• Product I49V $\text{Contribution Margin} = \text{Sales} - \text{Variable Expenses} = 44,000 - 13,200 = 30,800$

• Product Z50U $\text{Contribution Margin} = \text{Sales} - \text{Variable Expenses} = 49,000 - 28,650 = 20,350$

Step 2: Calculate the Total Sales and Total Contribution Margin

• Total Sales = $44,000 + 49,000 = 93,000$
• Total Contribution Margin = $30,800 + 20,350 = 51,150$

Step 3: Calculate the Contribution Margin Ratio

The contribution margin ratio (CM ratio) helps us understand how much of each dollar of sales contributes to covering fixed expenses.

$\text{CM Ratio} = \frac{\text{Total Contribution Margin}}{\text{Total Sales}} = \frac{51,150}{93,000} \approx 0.55$

Step 4: Calculate the Break-Even Point in Dollars

To find the break-even point in dollars, we divide the fixed expenses by the CM ratio.

$\text{Break-even Sales} = \frac{\text{Fixed Expenses}}{\text{CM Ratio}} = \frac{38,980}{0.55} \approx 70,873$

Answer

The break-even point for the entire company is closest to $70,873.

Would you like further details or have any questions?

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Here are five related questions for additional practice:

1. How would the break-even point change if fixed expenses increased?
2. What is the impact on the break-even point if variable expenses for Product Z50U decrease?
3. How would introducing a new product with a higher contribution margin affect the break-even point?
4. How would we calculate the break-even point in units for each product?
5. How does the contribution margin ratio help in analyzing profitability?

Tip: To lower a company's break-even point, consider increasing prices or reducing variable expenses.