Question

Question 2: Quebec Builders Inc. produces three products: A, B, and C. The following information is presented for the three products: Fixed Cost $ 142,000 Units produced Price Per Unit Variable Cost Per Unit Product A 80 $ 120 $ 60 Product B 120 $ 600 $ 360 Product C 200 $ 800 s 400 Required: 1. Calculate the contribution margin for each product 2. Calculate the break-even point in units of the three products A, B, and C combination based on the sales mix percentage 3. Please give suggestions to the decision makers about how to increase profit based on the CVP analysis.

Answer 1

Correct Answer:

Requirement a:

Product	A	B	C
Contribution margin	$ 60	$ 240	$ 400

Requirement b:

Product	Units to be produced
A	100
B	150
C	250

Requirement c:

If the decision maker wants to increase profits, number of units produced should be increased, or fixed cost or variable cost can be reduced if possible, otherwise price per unit can be increased slightly.

working:

	Product	A	B	C
A	price per unit	$ 120	$            600	$             800
B	Variable cost	$ 60	$            360	$             400
C=A-B	Contribution margin	$ 60	$            240	$             400

	Product	A	B	C	Total
A	price per unit	$ 120	$            600	$             800
B	Variable cost	$ 60	$            360	$             400
C=A-B	Contribution margin	$ 60	$            240	$             400
D	Sales mix	20%	30%	50%
E=C*D	Weighted average contribution margin	$ 12	$              72	$             200	$ 284
F	Fixed cost	$142,000
G=F/E	Breakeven point in units	500

	A	B	C=A*B
Product	Breakeven point in units	Sales mix	Units to be produced
A	500	20%	100
B	500	30%	150
C	500	50%	250

End of Answer.

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