Question

Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $50; white, $80; and blue, $105. The per unit variable costs to manufacture and sell these products are red, $35; white, $55; and blue, $75. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $145,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $15; white, by $25; and blue, by $15. However, the new material requires new equipment, which will increase annual fixed costs by $15,000.

Required:

1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round composite units up to next whole number.)

Answer 1

1
	Ratio	Selling price per unit		Total per composite unit
Red	5	50		250
White	4	80		320
Blue	2	105		210
				780
	Ratio	Variable cost per unit		Total per composite unit
Red	5	35		175
White	4	55		220
Blue	2	75		150
				545
Choose Numerator:	/	Choose Denominator:	=	Break Even Units
Total fixed costs	/	Contribution margin per unit	=	Break Even Units
145000	/	235	=	618	composite units
	Number per composite unit	Number of composite units to break even.		Units sales at the break­even point	Dollar sales at the break­even point
Red	5	618		3090	154500
White	4	618		2472	197760
Blue	2	618		1236	129780