Question

Question 2: Quebec Builders Inc. produces three products: A, B, and C. The following information is presented for the three products: Fixed Cost 2000 Product A Units produced 80 Product B 120 $ 600 Product 200 S 800 $ 400 Price Per Unit $ 120 t Petunit Variable Cost Per Unit $ 60 360 Required: 1. Calculate the contribution margin for each product 2. Calculate the break-even point in units of the three products A, B, and 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

Answer

1 contribution margin per unit = selling price - variable cost per unit

Contribution margin per unit of product A

= 120 - 60 = $60

Contribution margin in total of product A

= 80 × 60 = $4,800

Contribution margin per unit of Product B

= 600 - 360 = $240

Contribution margin in total of product B

= 120 × 240 = $28,800

Contribution margin per unit of product C

= 800 - 400 = $400

Contribution margin in total of product C

= 400 × 200 =$80,000

2 Sales mix

Total units produced = 80 + 120 + 200 = 400 units

Sales mix of product A = 80 / 400 = .2

Sales mix of Product B = 120 / 400 = .3

Sales mix of product C = 200 / 400 = .5

Break even point in unit of Quebec Builders

= fixed cost / weighted average contribution margin

Weighted average contribution margin

= (contribution margin per unit of product A × sales mix of product A) + (contribution margin per unit of product B × sales mix of product B) + (contribution margin per unit of product C × sales mix of product C)

Weighted average contribution margin

= (60 × .2) + (240 × .3) + (400 × .5) = $284

Fixed cost = $142,000

Break even point in unit of Quebec builders

= 142,000 / 284 = 500 units

Break even point in unit of Product A

= 500 × .2 = 100 units

Break even point in unit of product B

= 500 × .3 = 150 units

Break even point in unit of product C

= 500 × .5 = 250 units

Break even point in unit of Quebec builders is 500 units.

Break even point in unit of product A is 100 units

Break even point in unit of product B is 150 units

Break even point in unit of product C is 250 units

3 based on the cost volume profit analysis the company can increase its profit by producing product with highest contribution margin per unit. In the above case Product C provide the highest contribution margin per unit $400.

If there is any contrained resources the company can increase the profit by producing product with highest contribution margin per constrained resources.

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