Multiple Product Break-Even and Net Income
Planning
Grand Company manufactures and sells the following three
products:
Economy | Standard | Deluxe | |
---|---|---|---|
Unit sales | 10,000 | 6,000 | 4,000 |
Unit sales price | $50 | $58 | $70 |
Unit variable cost | $30 | $32 | $36 |
Assume that total fixed cost is $344,400.
a. Compute the net income before income tax based on the sales volumes shown above.
Economy | Standard | Deluxe | |
---|---|---|---|
Unit contribution margin | Answer | Answer | Answer |
Total contribution margin | Answer | Answer | Answer |
Net income before income tax: $Answer
b. Compute the break-even point in total dollars of revenue and
in unit sales volume for each product.
Enter product mix answers in decimal form.
Product | Product Mix | Contribution Margin per unit | Weighted average unit contribution margin |
---|---|---|---|
Economy | Answer | Answer | Answer |
Standard | Answer | Answer | Answer |
Deluxe | Answer | Answer | Answer |
Answer |
Break-even Answer units
Product | Break -even Units | Unit Sales Price | Break-even Sales Revenue |
---|---|---|---|
Economy | Answer | Answer | Answer |
Standard | Answer | Answer | Answer |
Deluxe | Answer | Answer | Answer |
Answer |
c. Prove your break-even calculations by computing the total contribution margin related to your answer in requirement (b).
Product | Break -even Units | Unit Contribution Margin | Total Contribution Margin |
---|---|---|---|
Economy | Answer | Answer | Answer |
Standard | Answer | Answer | Answer |
Deluxe | Answer | Answer | Answer |
Answer |
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A. Calculation of net income before income tax
Economy | Standard | Deluxe | |
Unit contribution margin | 20 | 26 | 34 |
Total contribution margin | $200,000 | 156,000 | 136,000 |
Unit contribution margin= selling price per unit - variable cost per unit
Economy= 50-30=20
Standard=58-32=26
Deluxe=70-36=34.
Total contribution margin= unit sales × contribution margin per unit
Economy=10,000×20= 200,000
Standard=6,000×26= 156,000
Deluxe= 4,000×34= 136,000.
Net income before tax= total contribution margin- total fixed cost
= 492,000- 344,400= $147,600.
B.
Product | Product mix | contribution margin per unit | weighted average contribution margin |
Economy | 0.5 | 20 | 10 |
Standard | 0.3 | 26 | 7.8 |
Deluxe | 0.2 | 34 | 6.8 |
24.6 |
Break even answer units
Break even units | unit sales price | break even sales revenue | |
Economy | 7,000 | 50 | 350,000 |
Standard | 4,200 | 58 | 243,600 |
Deluxe | 2,800 | 70 | 196,000 |
789,600 |
Break even units =( fixed cost ÷total weighted average contribution margin)×weighted average contribution margin
Economy=( 344,400÷24.6)×10= 14,000
Standard= (344,400÷24.6)×7.8= 4,200
Deluxe= (344,400÷24.6)×6.8= 2,800.
C. Computation of total contribution margin
Product | Break even units | unit contribution margin | total contribution margin |
Economy | 7,000 | 20 | 140,000 |
Standard | 4,200 | 26 | 109,200 |
Deluxe | 2,800 | 34 | 95,200 |
344,400 |
____×____
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