Question

A firm sells two products, Regular and Ultra. For every unit of Regular sold, two units of Ultra are sold. The firm's total fixed costs are $1,876,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra?

Product	Unit Sales Price					Variable Cost Per Unit
Regular		$	25				$	11
Ultra			28					7

Multiple Choice

• 33,500 Regular units and 33,500 Ultra units.

• 39,083 Regular units and 78,167 Ultra units.

• 11,167 Regular units and 22,333 Ultra units.

• 67,000 Regular units and 33,500 Ultra units.

• 33,500 Regular units and 67,000 Ultra units.

Kent Co. manufactures a product that sells for $66.00 and has variable costs of $37.00 per unit. Fixed costs are $348,000. Kent can buy a new production machine that will increase fixed costs by $13,800 per year, but will decrease variable costs by $4.50 per unit. Compute the revised break-even point in units if the new machine is purchased.

Multiple Choice

• 10,800 units.

• 12,476 units.

• 12,000 units.

• 8,718 units.

• 10,388 units.

Mott Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $23, $33, and $43, respectively. Variable costs per unit are $18, $19, and $26, respectively. Fixed costs are $318,000. What is the break-even point in composite units?

Multiple Choice

• 2,355 composite units.

• 4,130 composite units.

• 1,104 composite units.

• 5,300 composite units.

• 1,420 composite units.

Wang Co. manufactures and sells a single product that sells for $500 per unit; variable costs are $270 per unit. Annual fixed costs are $943,000. Current sales volume is $4,250,000. Compute the current margin of safety in dollars.

Multiple Choice

• $2,200,000.

• $2,050,000.

• $3,351,451.

• $1,540,780.

• $2,917,560.

Answer 1

	Regular	Ultra	Total
Selling price per unit	25	28
Variable cost per Unit	11	7
Contribution Margin per unit	14	21
Sales Mix	1	2	3
Total Contribution Margin	14	42	56
Weighted average Contribution Margin			18.66666667
Break even point = Fixed costs/Weighted average CM	100500	units
Regular	33500	Units
Ultra	67000	Units

The answer is

• 33,500 Regular units and 67,000 Ultra units.

Break even units = Fixed costs/(Selling price per unit – variable costs per unit)

= (348000+13800)/(66-32.5)

= 10,800 units

CM Ratio = (Sales – Variable costs)/Sales

= (500-270)/500 = 46%

Margin of Safety in Dollars = Sales – Break even Sales

= 4,250,000 – 943000/46%

= $2,200,000