Question

Marigold and Associates produces two products named Loser and Big Winner. Last month 1,000 units of Loser and 4,000 units of Big Winner were produced and sold. Average prices and costs for the two products for last month follow: Big Loser Winner Selling price $ 89 $ 229 Direct materials 40 98 Direct labour 5 25 Variable overhead 5 16 Product line fixed costs 10 40 Corporate fixed costs 21 21 Average margin per unit $ 8 $ 29 The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than corporate fixed costs listed under each product line could be avoided if the product line were dropped. Corporate fixed costs totalled $105,000, and the total sales amounted to 5,000 units, producing the average cost per unit of $21. About $6,560 of the corporate fixed costs could be avoided if Loser were dropped, and about $14,600 of the corporate fixed costs could be avoided if Big Winner were dropped. The remaining $83,840 could be avoided only by going out of business entirely. X Your answer is incorrect. Try again. What is the overall corporate breakeven in total sales revenue, assuming that the sales mix is the same as last month's? (Round intermediate calculations to 5 decimal places, e.g. 1.24647 and final answer to o decimal places, e.g. 5,278.) Breakeven revenue: 692,669 LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. What is the breakeven sales volume (in units produced and sold) for Loser? (In other words, what is the sales volume at which Marigold should be financially indifferent between dropping and retaining Loser?) Breakeven sales volume: 425 units

Answer 1

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Answer is highlighted in yellow: Solution: Break Even Point Sales units = Fixed cost / Contribution Margin per unit Step.01 Contribution Sales CM as per Product Margin Mix Sales mix Loser (89-40-5-5) $ 39.00 20% $ 7.80 Big Winner (229-98-25-16) $ 90.00 80% $ 72.00 Weighted average unit contribution margin $ 79.80 First of all, determine the total Break even unit value, then for each model as below: 761776 Step.02 Breakeven Revenue = (170000+6560+14600) / (79.80/318) = (191160)/(0.25094) Total Break-Even (170000+6560+14600) / (79.80) 2395 units b) Step.03 Break-even sales volume: Product Loser Big Winner 479 units (2395*20%) (2395*80%) 1916 units