Question

LACILISE VJU IVIUILIPITIUuuuur Kudly SIS LO 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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. (Round "Sales mix (based on units)" and "Weighted average contribution margin/unit" to 2 decimal places. Round your final answer for "Total units to breakeven" up to the nearest whole unit.) Show less Brighter Cleaner 0.00 Contribution margin/unit Sales mix (based on units) Weighted average CM per unit Total fixed costs to be recovered = Weighted average CM per unit Total units to breakeven

Answer 1

Solution : 1. Calculation of Break Even Point in total units for Smith Company :-

Particulars	Brighter	Cleaner
Selling Price per unit	$ 1000	$ 1000
Less : Variable Costs per unit	$ 200	$ 700
Contribution Margin Per Unit	$ 800	$ 300

	Brighter	Cleaner
Contribution Margin Per Unit	$ 800	$ 300
Sales Mix (Based on Units)	400 Units / 1000 Units = 0.4	600 Units / 1000 Units = 0.6
Weighted Average CM Per Unit			0.4* $800 +0.6* $300 = $ 500
Total Fixed Costs			$ 300000
Breakeven in Units			Total Fixed Costs/ Weighted Average CM per unit
			= $ 300000 / S 500 = 600 Units

2. Calculation of Break Even Point for each product :-

	Brighter	Cleaner	Total
Sales Mix	0.4 i.e 40%	0.6 i.e 60%	100%
Breakeven in Units	600 Units *40% = 240 Units	600 Units * 60% = 360 Units	600 Units

3. Calculation of Overall Breakeven in Unit Dollars :-

Breakeven Point in Units = 600 Units

Selling Price Per Unit = $ 1000

Breakeven Point in Unit Dollars = Breakeven point in Units * Selling Price per Unit

= 600 Units * $ 1000 = $ 600000