Question

Stella Company sells only two products, Product A and Product B. Total Selling price Variable cost per unit Total fixed costs Product A $70.00 $46.00 Product B $20.00 $14.00 $1,142,000 Stella sells two units of Product A for each unit it sells of Product B. Stella faces a tax rate of 30%. Stella desires a net after - tax income of $70,000. The breakeven point in units would be O A. 38,592 units of Product A and 19,296 units of Product B OB. 46,000 units of Product A and 23,000 units of Product B OC. 23,000 units of Product A and 46,000 units of product B OD. 19,296 units of Product A and 38,592 units of Product B

Answer 1

Weighted average contribution margin:

= {[($70 - $46) X 2] + ($20 - $14)} / 3

= $18

Profit before tax:

= $70,000 / 70%

= $100,000

Breakeven units:

= ($1,142,000 + $100,000) / $18

= 69,000

Product A:

= 69,000 X 2/3

= 46,000

Product B:

= 69,000 X 1/3

= 23,000

Option B.