The Lifestyle Company (TLC) is considering whether launch the following 2 new products.
Expected price and cost data for the two types of products are as follows.
Red 
Blue 

Selling price 
$100 
$50 
Variable Manufacturing Cost 
$8.00 
$3.00 
Variable Non Manufacturing Cost 
$3.50 
$1.50 
Fixed cost to manufacture both products is $300,000. The expected sales mix of Red and Blue: for every 35 units that TLC sells, 5 units would be from selling Red while 30 units would be from selling Blue.
Assuming TLC operates in a way that is consistent with all the relevant CostVolumeProfit assumptions, the number of units of Red and Blue it needs to sell to breakeven are closest to:
Group of answer choices
1,110 Red and 6,660 Blue
830 Red and 5,000 Blue
1,200 Red and 6,500 Blue
860 Red and 5,155 Blue
800 Red and 4,800 Blue
Sales mix = Red : Blue
= 5 : 30
= 1 : 6
Red  Blue  
Selling price per unit  100  50 
variable manufacturing cost  8  3 
Variable Non Manufacturing Cost  3.5  1.5 
Variable cost per unit  11.5  4.5 
Contribution margin per unit  88.5  45.5 
Weighted average Contribution margin per unit = Contribution margin per unit of Red x Sales mix proportion of Red + Contribution margin per unit of Blue x Sales mix proportion of Blue
= 88.5 x 1/7 + 45.5 x 6/7
= 12.45 + 39
= $51.45
Break even point = Fixed cost/Weighted average Contribution margin per unit
= 300,000/51.45
= 5,830 units
Break even Quantity of Red = Break even point x Sales mix proportion of Red
= 5,830 x 1/7
= 830 units
Break even Quantity of Blue = Break even point x Sales mix proportion of Blue
= 5,830 x 6/7
= 5,000 units
Second option is correct
Get Answers For Free
Most questions answered within 1 hours.