Question

Break-Even Point and Target Profit Measured in Units (Multiple Products). Hi-Tech Incorporated produces two different products with the following monthly data.

	Cell	GPS	Total
Selling price per unit	$100	$400
Variable cost per unit	$  40	$240
Expected unit sales	21,000	9,000	30,000
Sales mix	70 percent	30 percent	100 percent
Fixed costs			$1,800,000

Assume the sales mix remains the same at all levels of sales.

Required:

Calculate the weighted average contribution margin per unit.

How many units in total must be sold to break even?

How many units of each product must be sold to break even?

How many units in total must be sold to earn a monthly profit of $180,000?

How many units of each product must be sold to earn a monthly profit of $180,000?

Answer 1

1

Weighted average contribution margin per unit = (60*70%)+(160*30%)= $90

2

Units in total must be sold to break even = Fixed costs/Weighted average contribution margin per unit

Units in total must be sold to break even = 1800000/90= 20000 units

3

Units of Cell to break even = 20000*70%=14000 units

Units of GPS to break even = 20000*30%=6000 units

4

Units in total to earn a monthly profit of $180,000 = (180000+1800000)/90= 22000 units

5

Units of Cell to earn a monthly profit of $180,000 = 22000*70%= 15400 units

Units of GPS to earn a monthly profit of $180,000 = 22000*30%= 6600 units