A firm sells two products, Regular and Ultra. For every unit of Regular sold, two units of Ultra are sold. The firm's total fixed costs are $3,159,000. 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 $ 39 $ 15 Ultra 42 15
solution:
| Computation of weighted average contribution margin per unit | |||
| Particulars | Regular | Ultra | Total |
| Selling price per unit | $39.00 | $42.00 | |
| Variable cost per unit | $15.00 | $15.00 | |
| Contribution margin per unit | $24.00 | $27.00 | |
| Sales mix | 1/3 | 2/3 | |
| Weighted average contribution margin per unit | $8.00 | $18.00 | $26.00 |
Breakeven point in units = Fixed costs / Weighted average contribution margin per unit = $3,159,000 /$26 = 121500 units
break-even point in units of Regular = 121,500*1/3 = 40500 units
break-even point in units of Ultra = 121,500*2/3 = 81000 units
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