Question

Stella Company sells only two products, Product A and Product B. Total Selling price Variable cost per unit Total fixed costs Product A $60.00 $38.00 Product B $30.00 $22.00 $925,000 Stella sells two units of Product A for each unit it sells of Product B. Stella faces a tax rate of 40%. Stella desires a net after-tax income of $69,000. The breakeven point in units would be A. 40,000 units of Product A and 20,000 units of Product B B. 31,154 units of Product A and 15,577 units of Product B C. 20,000 units of Product A and 40,000 units of product B OD. 15,577 units of Product A and 31,154 units of Product B

Answer 1

Before tax net operating income

= After tax net operating income/(1-tax rate)

= 69,000/(1-0.40) = 115,000

Weighted average contribution margin per unit

= Product A (60-38)*2/3 + Product B (30-22)*1/3

= 14.67 + 2.67

= 17.33

Overall sales needed = (Fixed cost+after tax operating income) /Weighted average contribution margin per unit

= (925,000+115,000)/17.33

= 60,000 units

Units of product A = 60,000 * 2/3 = 40,000 units

Units of product B = 60,000 * 1/3 = 20,000 units

Option A