Question

Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows:

Product	Sales Price per Unit	Variable Cost per Unit
AA	$45	$35
BB	45	10
CC	35	15

Their sales mix is reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $234,000 per year.

A. What are total variable costs for Morris with their current product mix?

Total variable costs $

B. Calculate the number of units of each product that will need to be sold in order for Morris to break even.

	Number of Units per Product
AA
BB
CC

C. What is their break-even point in sales dollars?

Break-even point in sales $

D. Using an income statement format, prove that this is the break-even point. If an amount is zero, enter "0".

Income Statement
Sales
Product AA	$
Product BB
Product CC
Total Sales	$
Variable Costs
Product AA	$
Product BB
Product CC
Total Variable Costs	$
Contribution Margin	$
Fixed Costs
Net Income	$

Answer 1

A. What are total variable costs for Morris with their current product mix?
	Ratio	Variable cost per unit	Total per composite unit
AA	5	$                          35.00	$       175.00
BB	3	$                          10.00	$         30.00
CC	2	$                          15.00	$         30.00
Total variable costs $			$       235.00
Determine the selling price per composite unit.
	Ratio	Selling price per unit	Total per composite unit
AA	5	$                          45.00	$       225.00
BB	3	$                          45.00	$       135.00
CC	2	$                          35.00	$         70.00
Total selling  costs $			$       430.00
Contribution margin per unit ($430 - $235)	$               195.00
Determine the break-even point in composite unit.
Choose Numerator:	/	Choose Denominator:	=	Break Even Units
Total fixed costs	/	Contribution margin per unit	=	Break even units
234000		$                        195.00	=	1200.00
B. Calculate the number of units of each product that will need to be sold in order for Morris to break even.
	Number per composite unit	Number of composite units to break even.	Units sales at the break-even point	Selling price per unit	Dollar sales at the break-even point
AA	5	1200.00	6000	$          45.00	$ 270,000.00
BB	3	1200.00	3600	$          45.00	$ 162,000.00
CC	2	1200.00	2400	$          35.00	$   84,000.00
					$ 516,000.00
C. What is their break-even point in sales dollars?
Break-even point in sales (calculated part b)	$        516,000.00
D. Using an income statement format, prove that this is the break-even point. If an amount is zero, enter "0".
Income Statement
Sales
Product AA	$        270,000.00
Product BB	$        162,000.00
Product CC	$          84,000.00
Total Sales	$	$                 516,000.00
Variable Costs
Product AA	$        210,000.00
Product BB	$          36,000.00
Product CC	$          36,000.00
Total Variable Costs	$	$                 282,000.00
Contribution Margin	$	$                 234,000.00
Fixed Costs		234,000.00
Net Income	$	$                                -