Question

Oregon Company sells only two products, Product A and Product B.
                   Product A       ProductB     total
Selling price    40                     50
Variable cost
per unit            24                     40
Total fixed costs = 840,000

Oregon sells two units of Product A for each unit it sells of Product B. Oregon has a tax rate of 30%.

a. What is the breakeven point in Revenue, given the above sale mix and tax rate.

Answer 1

Tax rate is irrelevant for calculation of break-even, as there will be no income for tax to be applicable at break-even point.  

N = breakeven number of units n product B, 2N = breakeven number of units in product A

($40 x 2N) + ($50 x N) – ($24 x 2N) – ($40 x N) – $840,000 = 0

($130 x N) – ($88 x N) – $840,000 = 0

$42N – $840,000 = 0

N = $840,000/$42 = 20,000

Therefore, to break even, 40,000 units of Product A and 20,000 units of Product B need to be sold.

Sales of Product A = 40,000 X 40 = $1,600,000

Sales of Product B = 20,000 X 50 = $1,000,000