Question

Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows: Sales volume in units Unit sales price Unit variable cost Brighter 400 $1,000 200 Cleaner 600 $1,000 700 The number of machine hours to produce one unit of Brighter is 1, while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $300,000. Required: 1. Determine the breakeven point in total units for Smith Company, assuming that the sales mix (on the basis of relative sales volume in units) remains constant. Use the weighted-average contribution margin approach. 2. At this breakeven level, how many units of each product must be sold? Due to rounding, the total breakeven units for Requirement 2 may differ slightly than in Requirement 1. 3. Using the Indirect approach, what is the overall breakeven point in sales dollars? Use the breakeven units computed in Requirement 1.

Answer 1

Selling Price Per unit Variable Expense Per unit Contribution Margin Per unit $ $ $ Brighter 1,000.00 $ 200.00 $ 800.00 $ Less Cleaner 1,000.00 700.00 300.00 1 | $ Brighter 800.00 $ 0.40 320.00 $ Multiply Contribution Margin Per unit Sales Mix (based on units) Weighted average CM per unit Total fixed cost to be recorded Weighted average CM per unit Total units to breakeven Cleaner Total 300.00 0.60 180.00 $ $ 1.00 500.00 300,000 500.00 600 Units Divide $ Sales Mix Breakdown Brighter 0.40 240.00 Cleaner Total 0.60 360.00 $ 1.00 600.00 Working: Total units = 400+600 =1000 Sales mix = unit of product / total units 400 / 1000=0.4 Breakdown = total units to breakeven x sales mix 600 x 0.4 = 240 600 / 1000=0.6 600 x 0.6=360 3 Breakeven units Multiply Selling Price per unit Breakeven point in sales dollar $ $ $ Brighter 240.00 $ 1,000.00 $ 240,000 $ Cleaner Total 360.00 $ 1,000.00 $ 360,000 $ 600.00 1,000.00 600,000