Question

A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells,...

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
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Answer #1
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
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