Question

mith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows:

	Brighter		Cleaner
Sales volume in units	400		600
Unit sales price	$1,000		$1,000
Unit variable cost	200		700

The number of machine hours to produce one unit of Brighter is 1, while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $285,000.

Required:

1. Determine the breakeven point in total units for Smith Company, assuming that the sales mix (on the basis of relative sales volume in units) remains constant. Use the weighted-average contribution margin approach.

2. At this breakeven level, how many units of each product must be sold? Due to rounding, the total breakeven units for Requirement 2 may differ slightly than in Requirement 1.

3. Using the Indirect approach, what is the overall breakeven point in sales dollars? Use the breakeven units computed in Requirement 1.

Answer 1

Answer
Requirement 1 :
Particulars	Brighter	Cleaner
Contribution margin / unit	$800 [1000-200]	$300 [1000-700]
Sales mix (based on units)	400 [40%] or 0.4	600 [60%] or 0.6
Weighted Avg CM per unit	$320 [800x0.4]	$180 [300x0.6]	$500
Total Fixed costs to be recovered			$285,000
Weighted Avg CM per unit			$500
Total Units to break Even			570.00	Units
Answer 2
	Brighter	Cleaner
Sales Mix	40% or 0.40	60% or 0.60
Break Down	228 units [570 x 0.4]	342 units [570 x 0.6]
Answer 3
Total Units to break Even	570 units
Brighter Sales Dollars	$228000 [570*40%*1000]
Cleaner Sales Dollar	$342000 [570 x 60% x $1000]
Overall Break Even in Dollars	$570,000