Question

Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows: Sales Price Variable Cost Product per Unit per Unit $45 $30 BB CC 15 Their sales mix is reflected as a ratio of 5:32. Annual fixed costs shared by the three products are $273,000 per year A. What are total variable costs for Morris with their current product mix? Total variable costs B. Calculate the number of units of each product that will need to be sold in order for Morris to break even. Number of Units per Product c. What is their break-even point in sales dollars? Break-even point in sales s D. Using an income statement format, prove that this is the break-even point. If an amount is zero, enter "o". Income Statement Product AA Product BB Check My Work Previous Next All work saved Email restructor Save and Exit Subot Assignment for Cra

Answer 1

B.

	Number of Units per Product
AA	7,000
BB	4,200
CC	2,800

At break-even point, Total Contribution Margin = Total Fixed Costs

Let the break-even quantity be Q.

Weighted average contribution margin = $ ( 45 - 30 ) * 5 Q / 10 + $( 45 - 15 ) * 3 Q / 10 + $ ( 30 - 15 ) * 2 Q / 10 = 19.5 Q

Therefore, at BEP, 19.5 Q = $ 273,000

or Q = 14,000 units

C. Break-even point in sales dollars : $ 588,000

D.

Income Statement
Sales
Product AA	$ 315,000
Product BB	189,000
Product CC	84,000
Total Sales	$ 588,000
Variable Costs
Product AA	210,000
Product BB	63,000
Product CC	42,000
Total Variable Costs	315,000
Contribution Margin	273,000
Fixed Costs	273,000
Net Income	$ 0