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Topic
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A company produces and sells two products. The first product accounts for 75% of units sold and the second product accounts for the remaining 25% of units sold. The first product has a selling price of $10 per unit, variable costs of $6 per unit, and allocated fixed costs of $100,000. The second product has a selling price of $25 per unit, variable costs of $13 per unit, and allocated fixed costs of $212,000. At the breakeven point, what number of units of the first product will have been sold?
A.
52,000
B.
39,000
Incorrect C.
25,000
D.
14,625
This is the explanation, but I don’t understand why they would use both costs for calculation? I used 100000/(10-6), it is asking first product.
Total fixed costs of $312,000 ($100,000 from Product 1 and $212,000 from Product 2) must be covered by the contribution margin of the two products combined.
We know three times as many Product 1 units are sold as Product 2 units because 75% of unit sales is from Product 1. If we imagine a product package of 3 units of Product 1 and 1 unit of Product 2, it would be sold for (3 Ă— $10) + $25, or $55. The variable cost of the package would be 3 Ă— $6, or $18 for Product 1, plus $13 for Product 2, a total variable cost of $31. The contribution margin of the package would be $24 ($55 – $31).
Breakeven package units = Fixed costs Ă· Contribution margin per package = $312,000 Ă· $24 = 13,000 package units
Since there are 3 units of Product 1 in each package, sales of Product 1 will be 3 Ă— 13,000 packages, or 39,000 units of Product 1.
Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake
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