Question

Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $65; white, $95; and blue, $120. The per unit variable costs to manufacture and sell these products are red, $50; white, $70; and blue, $90. Their sales mix is reflected in a ratio of 2:2:1 (red:white:blue). Annual fixed costs shared by all three products are $160,000. One type of raw material ha been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $7; white, by $17; and blue, by $7. However, the new material require new equipment, which will increase annual fixed costs by $30,000. Required: 1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round composite units up to next whole number.) 1. Determine its break-even point in both sales units and sales dollars of each individual product. Determine the selling price per composite unit. Total per composite unit Ratio Selling price per unit Red 2 White 2 Blue 1 Determine the variable costs per composite unit. Variable cost per unit Total per comp Ratio unit Red White Blue Determine the break-even point in composite unit. Choose Numerator: Choose Denominator: Break Even Units Break even units Determine its break-even point in units and sales dollars of each individual product. Number Number of composite units to break even. Units sales at the break-even point Dollar sales at the break-even point per composite unit Red White Blue

Answer 1

Solution:

Determine the selling price per composite unit
	Ratio	Selling Price per unit		Total per composite unit
Red	2	$65		$130
White	2	$95		$190
Blue	1	$120		$120
	Total			$440
Determine the Variable cost per composite unit
	Ratio	Variable cost per unit		Total per composite unit
Red	2	$50		$100
White	2	$70		$140
Blue	1	$90		$90
	Total			$330
Break even point in Composite units
Choose numerator	/	Choose Denominator	=	Breakeven Units
Total Fixed cost	/	Composite Contribution Margin per unit	=	Breakeven Units
$1,60,000	/	$110	=	1455
Determine its break even point in units and sales dollars of each individual product
	No. per composite Unit	No.of composite units to break even		Unit sales at break even	Selling Price per unit	Dollar sales at break even
Red	2	1455		2910	$65	$1,89,150
White	2	1455		2910	$95	$2,76,450
Blue	1	1455		1455	$120	$1,74,600