Question

Silver River Company sells Products S and T and has made the following estimates for the coming year:

Product	Unit Selling Price	Unit Variable Cost	Sales Mix
S	$30	$24	60%
T	70	56	40

Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year (5 pts), (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year (5 pts), and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year (3 pts).

1. Break-even for overall units: ______________
2. Units of S needed: ___________       Units of T needed: _____________
3. Break-even for profit of $119,600: ______________

Answer 1

a) Break even point for overall units = Fixed Costs ÷ (Weighted Average Sales price per unit – Weighted Average Variable costs per unit)

Weighted average selling price per unit = ($30×60%)+($70×40%) = 46

Weighted average variable cost per unit = ($24×60%)+($56×40%) = 36.8

202400 ÷ 46- 36.8 = 22,000 units

b) Units of S needed = 60% of 22,000 = 13,200

Units of T needed = 40% of 22,000 = 8,800

c) Break even to earn a profit of $119,600 = Fixed Cost + Expected Profit ÷ Weighted Average Selling Price - Weighted Average Variable Cost

= 202,400+119,600 ÷9.2 = 35,000 units