Question

Corporation sells three products; Good, Better, Best. Selling price and variable costs are as follows: Good Better Best Selling price per unit $15.00 $18.00 $25.00 Variable costs per unit Direct materials $5.00 $8.00 $10.00 Direct labor $2.00 $5.00 $8.00 Variable overhead $2.00 $2.00 $2.00 Variable selling $1.00 $1.00 $2.00 Fixed costs are $92,256 per month. The products are sold in the following proportions: 25% Good, 30% Better, and 45% Best. How many units of Product Better will need to be sold at the breakeven point?

Answer 1

Calculation of variable cost per unit :

	Good	Better	Best
Direct materials	$5	$8	$10
Direct labor	$2	$5	$8
Variable overhead	$2	$2	$2
Variable selling	$1	$1	$2
Variable cost per unit	$10	$16	$22

Calculation of contribution margin per unit :

	Good	Better	Best
Selling price per unit	$15	$18	$25
(-) Variable cost per unit	( $10 )	( $16 )	( $22 )
Contribution margin per unit	$5	$2	$3

Weighted average contribution margin per unit = ( $5 * 25% ) + ( $2 * 30% ) + ( $3 * 45% ) = $3.2

Breakeven point in units = Total fixed expenses / Weighted average contribution margin per unit = $92,256 / $3.2 = 28,830 units

Units of Better to be sold at the breakeven point = 28,830 units * 30% = 8,649 units