Question

Exercise 18-22 CVP analysis using composite units LO P4 Handy Home sells windows and doors in the ratio of 8:2 (windows:doors). The selling price of each window is $200 and of each door is $500. The variable cost of a window is $125 and of a door is $350. Fixed costs are $900,000. (1) Determine the selling price per composite unit. Quantity Selling Price per unit Total per composite unit Windows Doors Total per composite unit (2) Determine the variable costs per composite unit. Quantity Variable costs per unit Windows Doors Contribution margin per composite unit Contribution margin (3) Determine the break-even point in composite units. Choose Numerator: I Choose Denominator: Break even units Break oven units

Answer 1

1)For every 1 unit sold ,.8 units are of window and .20 are of doors     [.80+.20 = 1]

	Quantity	Selling price per unit	Total per composite unit
Windows	.8	200	160
Doors	.2	500	100
			260

2)

	Quantity	variable cost per unit	Total per composite unit
Windows	.8	125	100
Doors	.2	350	70
			170

	Sales	260
Less:	Variable cost	170
	contribution margin	90

3)

Numerator	/	Denominator	=	Breakeven point in units
Fixed cost	/	Contribution margin per unit	=	Breakeven point in units
900000		90		10000 unit

4)

	Quantity	Number of composite units to breakeven	Unit sales at breakeven
Windows	10000	.80	10000*.8 =8000
Doors	10000	.20	10000*.2=2000
			10000