Question

P3-49 (similar to) The Nowak Company has three product lines of belts-A, B, and with contribution margins of $6, $4, and $2, respectively. The B, and 112,000 units of C. The company's fixed costs for the period are $612,000. Read the requirements. Requirement 1. What is the company's breakeven point in units, assuming that the given sales mix is maintained? Begin by determining the sales mix. For every 1 unit of A, V units of B are sold, and units of C are sold.

Answer 1

Calculation of breakeven point in units sale
Breakeven point in unit sales	Fixed costs/Contribution margin per unit
For every 1 unit of A, 5 units of B are sold and 4 units of C are sold
Sales mix	Contribution margin	Weighted average
1	$6	$6
5	$4	$20
4	$2	$8
Total		$34
Breakeven point in unit sales	612000/34
Breakeven point in unit sales	18,000
Product A	18000*1	18,000
Product B	18000*5	90,000
Product C	18000*4	72,000
Total break-even point in unit sales		180,000
2.
Calculation of contribution margin and operating income
Product A	280000*0.10*6	$168,000
Product B	280000*0.50*4	$560,000
Product C	280000*0.40*2	$224,000
Total contribution margin		$952,000
Less: Fixed costs		$612,000
Operating income		$340,000
3.
Calculation of operating income with new sales mix
Product A	28000*6	$168,000
Product B	112000*4	$448,000
Product C	140000*2	$280,000
Total contribution margin		$896,000
Less: Fixed costs		$612,000
Operating income		$284,000
Sales mix	Contribution margin	Weighted average
1	$6	$6
4	$4	$16
5	$2	$10
Total		$32
Breakeven point in unit sales	612000/32
Breakeven point in unit sales	19,125
Product A	19125*1	19,125
Product B	19125*4	76,500
Product C	19125*5	95,625
Total break-even point in unit sales		191,250