Question

A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $2,812,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra?

Product	Unit Sales Price		Variable Cost Per Unit
Regular	$	34	$	12
Ultra		37		11

Multiple Choice

• 38,000 Regular units and 38,000 Ultra units.

• 38,000 Regular units and 76,000 Ultra units.

• 12,667 Regular units and 25,333 Ultra units.

• 44,333 Regular units and 88,667 Ultra units.

• 76,000 Regular units and 38,000 Ultra units.

Answer 1

	Regular	Ultra
Contribution margin=(Sales-Variable costs)	(34-12)=$22	(37-11)=$26

Ratio of Sales=1:2

Hence weighted average Contribution margin=Respective Contribution margin*Respective sales mix

=(22*1/3)+(26*2/3)=$24.67(Approx).

Hence breakeven sales=Fixed cost/weighted average Contribution margin

=(2,812,000/24.67)=114,000 units

Hence breakeven for:

Regular=(1/3)*114,000=38,000 units

Ultra=(2/3)*114,000=76,000 units

Hence the correct option is:

38,000 Regular units and 76,000 Ultra units