Question

The Riley Corporation manufactures baseball bats and balls for the league teams. For every 3 bats sold, 5 balls are sold. Bats sell for $18 each, while balls sell for $6 each. Manufacturing variable costs for the bats are $6 each and for the balls $2 each. Calculate the break-even point in dollars for Riley if the fixed costs are $180,000. (Round your answer to the nearest whole unit).

Select one:

a. $ 25,714

b. $ 295,714

c. $ 540,000

d. $ 270,006

Question 18

Dena Company temporarily has excess production capacity. The idle plant facilities can be used to manufacture a low-margin item. The low-margin should be produced if it can be sold for more than its

Select one:

a. variable costs plus any opportunity cost of the idle facilities

b. variable costs

c. direct costs

d. direct costs plus any opportunity cost of the idle facilities

Answer 1

Answer 1. d. $ 270,006

Explanation:

Product	Sales Mix	Sale price per unit	Contribution margin per unit (sales - Variable cost)	Weighted average CM per unit
Bat	3 / 8 = 0.375	$18	$18 - $6 = $12	12 * 0.375 = $4.5
Balls	5/8 = 0.625	$6	$6 - $2 = $4	4 * 0.625 = $2.5
			Total	$7

Break-even point in units = Fixed costs / Weighted average CM ratio = = $180,000 / $7 = 25,714 units

For Bat = 25,714 units * 0.375 = 9,643 units

For Ball = 25,714 units * 0.625 = 16,071 units

Break-even point in dollars = (9,643 units * $18) + (16,071 units * $6) = $270,000 or $ 270,006 (approx)

Answer 2. a. variable costs plus any opportunity cost of the idle facilities

Explanation: The low-margin item should be produced if the sales value is more than the variable cost to produce the item plum the opportunity cost of the idle facilities which will be used to produde those items.