Question

Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $61; white, $91; and blue, $116. The per unit variable costs to manufacture and sell these products are red, $46; white, $66; and blue, $86. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $156,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $9; white, by $19; and blue, by $9. However, the new material requires new equipment, which will increase annual fixed costs by $26,000.

1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round composite units up to next whole number.)

Answer 1

X fx 1 | B I ratio red white selling price per unit $61 $91 $ 116 total per composite unit $ 305 $364 $ 232 $ 901 blue total per composite unit red $ 230 variable cost per unit $46 $ 66 $ 86 white blue 1 2 $ 264 $ 172 $ 666 total fixed costs $ 156,000 contribution margin per unit $ 235 break even units 664 composite units number per composite unit number of composite units to break even units sales at the break even point dollar sales at the break even point red white blue 664 664 664 3,320 2,656 1,328 $ 202,520 $ 241,696 $ 154,048

for formulas and calculations, refer to the image below -

B2 | x 1 fc D B A 1 ratio I selling price per unit 1 red white blue 5 4 2 total per composite unit =D3*E3 =D4*E4 =D5*E5 =SUM(G3:45) 116 ratio variable cost per unit red white blue 5 14 total per composite unit =D9*E9 =D10*E10 =D11*E11 =SUM(G9:G11) total fixed costs 156000 contribution margin per unit =G6-G12 break even units = =ROUNDUP(C15/E15,0) composite units number per composite unit number of composite units to break even units sales at the break even dollar sales at the break point even point red =G18*E3 white =D9 =D10 =D11 =$G$15 =$G$15 =$G$15 =D18*E18 =D19*E19 =D20*E20 =G19*E4 blue =G20*E5

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