Question

Business Solutions sells upscale modular desk units and office chairs in the ratio of 3:2 (desk unit:chair). The selling prices are $1,170 per desk unit and $420 per chair. The variable costs are $670 per desk unit and $170 per chair. Fixed costs are $300,000. Required: 1. Compute the selling price per composite unit. 2. Compute the variable costs per composite unit. 3. Compute the break-even point in composite units. 4. Compute the number of units of each product that would be sold at the break-even point.

Answer 1

1.

Selling price per composite unit = ($1,170 * 3 / 5) + ($420 * 2 / 5)

= $702 + $168

= $870

2.

Variable costs per composite unit = ($670 * 3 / 5) + ($170 * 2 / 5)

= $402 + $68

= $470

3.

Contribution margin per composite unit = Selling price per composite unit - Variable costs per composite unit

= $870 - $470

= $400

Break-even point in composite units = Fixed costs / Contribution margin per composite unit

= $300,000 / $400

= 750 units

4.

Modular desks = 750 units * 3 / 5 = 450 units

Office chairs = 750 units * 2 / 5 = 300 units