Question

High-End Set Economical Set
Sales price $3,500 per unit $1,000 per unit
Labor $875 per unit $250 per unit
Materials $1400 per unit $300 per unit

Direct fixed costs $25,000 per month $16,500 per month
Allocated fixed costs $85,000 per month $85,000 per month

They want a better understanding of their business to make budgeting and sales goals decisions and have asked you to determine their:

Break-even quantities for each product line
Break-even quantities to earn $500,000 per year margin on the high-end line (at the current sales price)
Break-even quantities to earn $300,000 per year margin on the economical line (at the current sales price)
They expect the product lines to fully absorb the costs allocated to them.

Once you have determined these amounts, they have asked that you:

present the information
describe how you performed your calculations
and explain what the results mean

Answer 1