Question

UP Forklifts sells two​ products, large forklifts and small forklifts. A large forklift sells for​ $80,000 per unit with variable costs of​ $20,000 per unit. Small forklifts sell for​ $55,000 per unit with variable costs of​ $12,000 per unit. Total fixed costs for the company are​ $3,944,000. UP Forklifts typically sells one large forklift for every four smalls. What is the breakeven point in total​ units?

Answer 1

Contribution Margin per unit = Selling price per unit - Variable cost per unit

Large Forklift
Contribution Margin per unit = $80,000 - $20,000 = $60,000

Small Forklift
Contribution Margin per unit = $55,000 - $12,000 = $43,000

Weighted Contribution margin per unit
Large Forklift = $60,000 x 1/5 = $12000
Small Forklift = $43,000 x 4/5 = $34400
Total Contribution margin per unit = $46400 i.e. $12000 + $34400

Break even point in total units = Fixed cost / Wighted contribution margin per unit
= $3944000 / $46400 = 85 units