Question

Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water
that passes through the faucet. The other is a pitcher-filter that only purifies water meant for drinking.
Revenue and cost information for each product appears below:

●      the unit that attaches to the faucet is sold for $70 and has variable costs of $30

●     the pitcher-filter sells for $80 and has variable costs of $45

●     fixed costs total $424,000

●     Pure Water sells 4 faucet models for every 3 pitcher-filters sold

Calculate the number of units of the faucet-model that must be sold in order for Pure Water Products
to earn a target profit of $212,000.

Answer 1

First of all let’s see the formula for calculating number of units to be sold of the faucet-model to earn a target profit of $212000;

Following formula will be used;

Number of units to be sold = (Fixed costs + Desired profits / Contribution margin)

Fixed costs = $424000

Desired profit = $212000

Contribution margin will be calculated as follow;

	Selling Price	Variable cost	Contribution margin	Sales mix	Total
Faucet	$70	$30	$40	4	$160
Pitcher	$80	$45	$35	3	$105
Total Package					$265

Break-even package (in units) =

(Fixed costs + Desired profits / Contribution margin)

Break-even package (in units) = ($424000 + $212000) / $265

= 2400 units

Break-even units of faucet-model = (2400 * 4)

= 9600 units