Question

Birch Manufacturers has provided the following information regarding the two products that it​ sells:

	Jet Boats	Ski Boats
Sales price per unit	$12,000	$24,000
Variable cost per unit	$6,000	$16,000

Annual fixed costs are $280,000.

How many units must be sold in order for Birch to break​ even, assuming that Birch sells five jet boats for every two ski boats​ sold? (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ unit.)

A.7 jet boats and 6 ski boats

B.31 jet boats and 12 ski boats

C.12 jet boats and 31 ski boats

D.6 jet boats and 7 ski boats

Answer 1

	Jet Boats	Ski Boats
Contribution margin per unit(Sales price -Variable cost)	(12000-6000)=$6000	(24000-16000)=$8000

Sales mix=5:2

Weighted Average Contribution margin=Respective Contribution margin*Respective sales mix

=(6000*5/7)+(8000*2/7)

=6571.43(Approx)

Hence total breakeven=Fixed cost/Weighted Average Contribution margin

=(280,000/6571.43)

=42.61 boats(Approx)

Hence boats to be sold of:

Jet=(42.61*5/7)=31 boats(Approx)

Ski=(42.61*2/7)=12 boats(Approx).

Hence the correct option is B.