Question

Home Builders sells windows and doors in the ratio of 8:2 (windows:doors). The selling price of each window is $100 and of each door is $250. The variable cost of a window is $62.50 and of a door is $175. Fixed costs are $450,000.

(1)	Determine the weighted-average contribution margin per unit. ( (2) Determine the break-even point in units.

Answer 1

Answer to Part 1.:

Unit Contribution Margin = Unit Selling Price - Unit Variable Cost

Window's Unit Contribution Margin = $100 - $62.50 = $37.50

Door's Unit Contribution Margin = $250 - $175 = $75

Weighted Average Contribution Margin = ($37.50 * 8/10) + ($75 * 2/10)

Weighted Average Contribution Margin = $45.00

Answer to Part 2.:

Break Even Point (Units) = Fixed Cost/ Unit Contribution Margin

Combined Break Even Point (Units) = $450,000/ $45.00

Combined Break Even Point (Units) = 10,000 Units

Window's Break Even Units = 10,000 * 8/10

Window's Break Even Units = 8,000 Units

Door's Break Even Units = 10,000 * 2/10

Door's Break Even Units = 2,000 Units