Question

Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-filter that only purifies water meant for drinking. Revenue and cost information for each product appears below: ● the unit that attaches to the faucet is sold for $70 and has variable costs of $45 ● the pitcher-filter sells for $80 and has variable costs of $30 ● fixed costs total $442,000 ● Pure Water sells 4 faucet models for every 3 pitcher-filters sold Calculate the number of units of the pitcher-filters that must be sold in order for Pure Water Products to break-even.

Answer 1

Ans:

Contribution = sales – variable cost

1) Faucet model contribution

=70-45

=$25 per unit

2) Pitcher filter contribution

=80-30

=$50 per unit

4 faucet models for every 3 pitcher filter i.e 4:3

Weighted average contribution/unit

=25*4+50*3/7

  = 35.71

Fixed cost = $442,000

Break even point (units):

Fixed cost/ weighted avg contribution per

= $442,000/35.71

=12,377 units

Faucet model BEP in units

= 12,377x 4/7

=7,073 units

Pitcher filter =5,304 units

i.e (12,377-7,073)