Question

A firm sells two products, Regular and Ultra. For every unit of Regular sold, two units...

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

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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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