Question

Exercise 18-22 CVP analysis using composite units LO P4 Handy Home sells windows and doors in the ratio of 7.3 (Windows doors). The selling price of each window is $111 and of each door is $261. The variable cost of a window is $68.00 and of a door is $180.50. Fored costs are $515,375, (Enter your "per unit" values in two decimal places.) (1) Determine the selling price per composite unit. Quantity Windows Doors Selling Price per unit Total per composite unit (2) Determine the variable costs per composite unit. Quantity Variable costs per unit Windows Total per composite unit Contribution margin per composite unit Contribution margin (3) Determine the break-even point in composite units. Choose Numerator: Choose Denominator Break Even Units Break even units (4) Determine the number of units of each product that will be sold at the break-even point. Quantity Number of composite units to break even Windows Doors Total Unit sales at break even point < Prey 7 of 8 11

Answer 1

Assuming number of windows be 7 and number of doors be 3.

1) Selling price per composite unit :

Windows = $111 * 7 = $777

Doors = 261 * 3 = 783

Selling price per composite unit

= 777 + 783

= $1560

2) Variable cost per composite unit :

Windows : $68 * 7 = $476

Doors : $180.5 * 3 = $541.5

Variable cost per composite unit

= 476 + 541.5

= $ 1017.5

Contribution margin per composite unit :

CM per composite unit = Selling price per composite unit - Variable cost per composite unit

= 1560 - 1017.5

= $ 542.5

3)Break even point in composite units :

BEP in composite units = Fixed cost / contribution margin per composite unit

= 515375 / 542.5

= 950 units

4) Number of units of each product that will be sold at break even point :

Consider sales ratio 7:3

Windows = 950 * 7 = 6650 windows

Doors = 950 * 3 = 2850 doors