A firm sells two products, Regular and Ultra. For every unit of
Regular the firm sells, two units of Ultra are sold. The firm's
total fixed costs are $2,409,000. Selling prices and cost
information for both products follow. What is the firm's break-even
point in units of Regular and Ultra?
Product | Unit Sales Price | Variable Cost Per Unit | ||
Regular | $ | 31 | $ | 11 |
Ultra | 34 | 11 | ||
Step-1:Calculation of weight of each product | ||||||||||||
For every unit of Regular the firm sells, two units of Ultra are sold. | ||||||||||||
Regular | 1 | |||||||||||
Ultra | 2 | |||||||||||
Total | 3 | |||||||||||
So, weight of: | ||||||||||||
Regular | 1/3 | = | 0.3333 | |||||||||
Ultra | 2/3 | = | 0.6667 | |||||||||
Total | 1.0000 | |||||||||||
Step-2:Calculation of weighted contribution margin per unit | ||||||||||||
Weight (1) | Contribution margin per unit (2) | Weighted contribution margin per unit (1) *(2) | ||||||||||
Regular | 0.3333 | $ 20.00 | $ 6.67 | |||||||||
Ultra | 0.6667 | $ 23.00 | $ 15.33 | |||||||||
Total | $ 22.00 | |||||||||||
Working: | ||||||||||||
Selling price per unit (1) | Variable cost per unit (2) | Contribution Margin per unit (1)-(2) | ||||||||||
Regular | $ 31.00 | $ 11.00 | $ 20.00 | |||||||||
Ultra | $ 34.00 | $ 11.00 | $ 23.00 | |||||||||
Step-3:Calculation of combined break even unit | ||||||||||||
Break even unit | = | Fixed costs/Contribution margin per unit | ||||||||||
= | $ 24,09,000 | / | $ 22.00 | |||||||||
= | 1,09,500 | |||||||||||
Step-4:Calculation of break even units of each product | ||||||||||||
Break even unit of: | ||||||||||||
Regular | = | 1,09,500 | * | 0.3333 | = | 36,500 | ||||||
Ultra | = | 1,09,500 | * | 0.6667 | = | 73,000 | ||||||
Thus, | ||||||||||||
Firm's break-even point in units of: | ||||||||||||
Regular | 36,500 | Units | ||||||||||
Ultra | 73,000 | Units | ||||||||||
A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells,...
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