Question

Pharoah Industries sells two electrical components with the following characteristics. Fixed costs for the company are...

Pharoah Industries sells two electrical components with the following characteristics. Fixed costs for the company are $202,000 per year.

XL-709

CD-918
Sales price $30.00 $45.00
Variable cost 26.00 37.00
Sales volume 40,400 units 60,600 units

(a)

How many units of each product must Pharoah Industries sell in order to break even? (Round answers to 0 decimal places, e.g. 25,000.)
XL-709 CD-918
Break even units
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Homework Answers

Answer #1

Answer:

XL-709 CD-918
Break even units 12625 18938

Explanation:

Total sales volume = 40400 units + 60600 units = 101000 units

Sales Mix of Product XL - 709 = 40400 / 101000 = 40%

Sales Mix of Product CD - 918 = 60600 / 101000 = 60%

Contribution margin = sale price - variable cost per unit

Contribution margin of product XL - 709 = $30 - $26 = $4

Contribution margin of product CD - 918 = $45 - $37 = $8

weighted Average contribution margin = $4 * 40% + $8*60% = $1.6 + $4.8 = $6.4

Break even points in units = Fixed cost / weighted Average Contribution margin per unit

= $202000 / $6.4

= 31562.5 i.e. 31563 units.

Break even units of XL - 709 = 31563 units. * 40% = 12625

Break even Units of CD - 918 = 31563 units * 60% = 18938

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