Question

ZZ Company produces and sells four products. Information about these products for 2019, the most recent year, appears below:

	Product A	Product B	Product C	Product D
Selling price per unit	$19	$14	$17	$16
variable costs per unit	$8	$5	$13	$7
number of units sold	22,000	30,000	15,000	20,000

ZZ Company reported total fixed costs of $601,600 in 2019. Calculate the number of units of Product A that needed to be sold in 2019 in order for ZZ Company to earn a net income of $225,600.

Answer 1

Sol:

1.If ZZ Company sales only product A during the year, 2019:

Particulars	Product A
Selling price per unit	$ 19.00
variable costs per unit	$          8.00
Contribution per unit	$         11.00
Fixed Cost	$     601,600
Profit	$     225,600

Sales of product A to earn a profit of $ 225,600 =   Fixed cost + Desired profit/ Contribution per unit
= $601,600 + $225,600 / $11

= $827,200/ $11

= 75,200 unit

Hence 75,200 units of product A to be sold to earn a profit of $ 225,600.

2. If ZZ Company sales all products A, B C, and D  during the year, 2019:

	Product A	Product B	Product C	Product D
Selling price per unit	$ 19.00	$   14.00	$   17.00	$   16.00
variable costs per unit	$          8.00	$    5.00	$   13.00	$    7.00
Contribution per unit	$         11.00	$    9.00	$    4.00	$    9.00

Fixed Cost = $601,600
Profit = $225,600

Sales Mix in quantity A:B:C:D  = 22:30:15:20

Composite contribution per unit = A $11*22/87 + B $9*30/87 + C $ 4*15/87 + D $9*20/87

=$2.75+$5.11+$1.28+$2.27

= $11.41

Total Sales to earn a profit of $ 225,600 =   Fixed cost + Desired profit/ Composite Contribution per unit

= $601,600 + $225,600 / $11.41

= $827,200/ $11.41

= 72,497 units (approx)

Sales of Product A = 72,497/87*22

= 18,332 units (approx)