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A firm sells one product, a 21-jet jacuzzi, for a per unit price of $10,000. Variable...

A firm sells one product, a 21-jet jacuzzi, for a per unit price of $10,000. Variable costs per unit are $5,000.

The firm also sells a second product, a jacuzzi skimmer (for clearing debris from the water), for a per unit price of $50. Variable costs per unit are $25.

The firm has a sales mix of 1 jacuzzi for every 50 jacuzzi skimmers. That is, the sales mix is 1:50.

The firm has total fixed costs of $940,000.

How many units sales of jacuzzis are required to earn a profit of $1,060,000?

a.

25 units
b.

6,250 units
c.

320 units
d.

16,000 units
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Answer #1

Contribution per 21-jet jacuzzi is $10,000 - $5,000 = $5,000

Contribution per jacuzzi swimmer is $50 - $25 = $25

If sales mix is 1:50, let x be the number of units, then

sales mix is 1x:50x

Total contribution in ration of 1:50 is (5000*1x) + (25*50x) = 6250x

As Contribution- fixed costs = profit, hence

6250x - 940,000 = 1,060,000

x= 320

320 units sales of jacuzzis are required to earn a profit of $1,060,000.

The answer is c.

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