Question

(Ch6) BM Company sells two products, X and Y. Product X sells for $20 per unit with variable costs of $11 per unit. Product Y sells for $30 per unit with variable costs of $16 per unit. During this period, BM sold 16,000 units of X and 4,000 units of Y, making Total Revenue of $440,000, and after subtracting variable cost got Total Contribution Margin of $200,000, and after subtracting Total Fixed Cost of $110,000, earned Operating Profit of $90,000. When in breakeven, how many units of X and Y would be sold? (rounded) Select one:

a. 8,800 units of X, and 2,200 units of Y.

b. All listed choices are incorrect.

c. 3,000 units of X, and 1,000 units of Y.

d. 8,049 units of X, and 2,683 units of Y.

Answer 1

Break even points in units = Fixed costs / Weighted average contribution margin per unit

Units X to Units Y = 16,000 : 4,000

= 4 : 1 or 0.8 : 0.2

Weighted average contribution margin = (Product X contribution margin per unit * 0.8) + (Product Y contribution margin per unit * 0.2)

Product X contribution margin per unit = Selling price - Variable cost per unit

= $20 - $11

= $9

  Product Y contribution margin per unit = Selling price - Variable cost per unit

= $30 - $16

= $14

Weighted average contribution margin = ($9 * 0.8) + ($14 * 0.2)

= $7.2 + $2.8

= $10

Break even points in units = $110,000 / $10

= 11,000 units

Break even point of Product X = 11,000 * 0.8

= 8,800 units

Break even point of Product Y = 11,000 * 0.2

= 2,200 units