Question

A company produces and sells two products. The first product accounts for 75% of sales, and the second product accounts for the remaining 25% of sales. The first product has a selling price of $10 per unit, variable costs of $6 per unit, and allocated fixed costs of $100,000. The second product has a selling price of $25 per unit, variable costs of $13 per unit, and allocated fixed costs of $212,000. At the breakeven point, what number of units of the first product will have been sold?

A) 14,625

B)52,000

C)39,000

D) 25,000

Answer 1

First Product:

Selling Price per unit = $10
Variable Cost per unit = $6

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $10 - $6
Contribution Margin per unit = $4

Second Product:

Selling Price per unit = $25
Variable Cost per unit = $13

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $25 - $13
Contribution Margin per unit = $12

Sales Mix = 0.75 : 0.25

Fixed Costs = $100,000 + $212,000
Fixed Costs = $312,000

Weighted-average Contribution Margin per unit = 0.75 * $4 + 0.25 * $12
Weighted-average Contribution Margin per unit = $6

Overall Breakeven Point = Fixed Costs / Weighted-average Contribution Margin per unit
Overall Breakeven Point = $312,000 / $6
Overall Breakeven Point = 52,000

First Product at Breakeven Point = 75% * 52,000
First Product at Breakeven Point = 39,000