Question

The Terrence Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year Baubles 16,000 units $16,000 Trinkets 8,000 units $16,000 Sales Costs: Fixed Variable Income before taxes $3,600 6,400 $11,520 3,200 10,000 $ 6,000 14,720 $ 1,280 How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used with the sales mix remaining constant?

Answer 1

	Baubles	Trinkets
Sales	16,000	16,000
Variable costs	- 6,400	- 3,200
Contribution margin (i)	9,600	12,800
Number of units (ii)	16,000	8,000
Contribution margin per unit (i)/(ii)	$0.6	$1.6

Sales mix: Baubles:Trinkets = 16,000:8,000

= 2:1

Weighted Contribution margin per unit = 0.6 x 2/3 + 1.6 x 1/3

= 0.4 + 0.53333333

= $0.933333333

Break even point = Fixed costs/Weighted Contribution margin per unit

= 15,120/0.933333333

= 16,200 units

Quantity of Baubles to be sold at break even = 16,200 x 2/3

= 10,800 units

Third option is correct.

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