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Item 4

Item 4 6.66 points

Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $20; white, $35; and blue, $65. The per unit variable costs to manufacture and sell these products are red, $12; white, $22; and blue, $50. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $250,000. 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 $6; white, by $12; and blue, by $10. However, the new material requires new equipment, which will increase annual fixed costs by $50,000.

Required:

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

1	Break even units =	Total fixed costs/Contribution margin per unit
	=	$250,000/$122.00
	=	2,050	Units
	Determine the variable costs per composite unit
		Ratio	Number of composite units to break even	Units sales at the break-even point	Dollar sales at the break-even point
	Red	5	2,050	10,250	$205,000.00
	White	4	2,050	8,200	$287,000.00
	Blue	2	2,050	4,100	$266,500.00
					$758,500.00
	Working
	Determine the selling price per composite unit
		Ratio	Selling price per unit	Total per composite unit
	Red	5	$20.00	$100.00
	White	4	$35.00	$140.00
	Blue	2	$65.00	$130.00
				$370.00
	Determine the variable costs per composite unit
		Ratio	Variable cost per unit	Total per composite unit
	Red	5	$12.00	$60.00
	White	4	$22.00	$88.00
	Blue	2	$50.00	$100.00
				$248.00