Question

Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows: Sales Price Variable Cost Product per Unit per Unit $45 $30 BB 35 20 CC AA Their sales mix is reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $126,000 per year. A. What are total variable costs for Morris with their current product mix? Total variable costs $ B. Calculate the number of units of each product that will need to be sold in order for Morris to break even. Number of Units per Product CC C. What is their break-even point in sales dollars? Break-even point in sales $

Answer 1

A	B	C	D	E = D*B
Pruduct	Units(Sales Mix)	Sales Price	Variable Cost	Total Variable Cost	Weights for Units	Weighted Average Sales Price	Weighted Average Variable Cost	Weighted Average Contribution
AA	5	45	30	150	0.5	22.5	15	7.5
BB	3	35	20	60	0.3	10.5	6	4.5
CC	2	25	15	30	0.2	5	3	2
Total	10					38	24	14
	A	Total variable Cost = Variable cost per unit *No. of Units
			= 30 * 5 + 20 * 3 + 15 *2
			= 240
	B	Break Even in Units = Total Fixed Cost / Total Weighted Average Contribution
			=126000/14
			=9000
	No. of Units for
	AA	9000*.5 = 4500 Units
	BB	9000 *.3 =2700 Units
	CC	9000*.2 =1800 Units
	C	Break Evn in sales dollar
		Break Even Units	Selling price	Total Sales
	AA	4500	45	202500
	BB	2700	35	94500
	CC	1800	25	45000
		Total break even sales in dollar	342000
	D
	Income Statement
	Sales
		Product AA	202500
		Product BB	94500
		Product CC	45000
	Total Sales	342000
	Variable COST
		Product AA	135000
		Product BB	54000
		Product CC	27000
	Total vc		216000
	Contribution MARGIN	126000
	Less: Fixed Cost	126000
	Net INCOME	0