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Leggins Company sells two products, X and Y. Product X sells for $20 per unit with...

Leggins Company sells two products, X and Y. Product X sells for $20 per unit with variable costs of $15 per unit. Product Y sells for $24 per unit with variable costs of $20 per unit. Total common fixed costs for the company are $38,000. Leggins Company typically sells three units of Product X’s for every one unit of Product Y. What is the breakeven point in total units?

A. 2,000 units B. 6,000 units C. 6,333 units D. 8,000 units

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Answer #1

Contribution margin calculation:

Contribution margin = Selling price - Variable cost

Product X = $20 - $15 = $5

Product Y = $24 - $20 = $4

For every 3 units of Product X, 1 unit of Product Y is sold. Total 4 units are sold.

Total Contribution for 4 units = (3 units X $5) + (1 unit X $4) = $19

For 4 units, the total contribution is $19

At breakeven point Contribution margin and fixed cost are equal.

For earning $38,000, number of units to be sold is

= ($38,000 X 4) / $19

= 8,000 units for breakeven

Option D. 8,000 units

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