Question

QUESTION 21 Yerke Company makes jungle gyms and tree houses for children. For jungle gyms, the price is $120 and variable expenses are $90 per unit. For tree houses, the price is $200 and variable expenses are $100. Total fixed expenses are $253,750. Last year, Yerke sold 12,000 gyms and 4,000 tree houses. Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000 units. What is the number of jungle gyms sold at break-even? a. 1,002 b. 668 c. 2,625 d. 1,750 e. 875

Answer 1

Answer-

Number of units sold of Jungle gyms	12,000 units
Number of units sold of tree houses	4,000 units
Sales mix	3:1

In the current year, number of units of tree houses sold increased from 4,000 units to 8,000 units.

Number of units sold of Jungle gyms	12,000 units
Number of units sold of tree houses	8,000 units
Sales mix	3:2

Sales mix in terms of percentage

Sales mix in terms of percentage (Jungle gyms)	3 / 5 = 0.6 or 60%
Sales mix in terms of percentage (Tree houses)	2 / 5 = 0.4 or 40%

Calculation of contribution margin per unit:-

	jungle gyms	tree house
Sales	120	200
Less: Variable cost	90	100
Contribution margin	$30	$100

Weighted average contribution margin per unit = (30 * 0.6) + (100 * 0.4)

= $58

Break-even point in units = Fixed cost / weighted average contribution margin per unit

= 253,750 / 58

= 4,375 units

Number of jungle gyms sold at break-even = Break-even point in units * sales mix percentage

= 4,375 * 0.6

= 2,625 units

Hence, the correct option is c.2,625 units