Question

Ramirez Corporation sells two types of computer hard drives. The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $90 and a selling price of $150. Q-Drive Plus has variable costs per unit of $105 and a selling price of $195. Ramirez's fixed costs are $891,000. How many units of Q-Drive would be sold at the break-even point?

Answer 1

Answer:

Break-even point in units= 3,300 units

Explanation:

Giving the following information:

The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus).

Q-Drive has variable costs per unit of $90 and a selling price of $150.

Q-Drive Plus has variable costs per unit of $105 and a selling price of $195.

Ramirez's fixed costs are $891,000.

To calculate the break-even point in units, we need to use the following formula for the company as a whole:

Break-even point (units)= Total fixed costs / Weighted average contribution margin ratio

Weighted average contribution margin ratio= (weighted average selling price - weighted average unitary variable cost)

Weighted average contribution margin ratio= (0.3*150 + 0.7*195) - (0.3*90 + 0.7*105)

Weighted average contribution margin ratio= 81

Break-even point (units)= 891,000/81

Break-even point (units)= 11,000 units

Now, for Q-Drive:

Break-even point in units= 11,000*0.3= 3,300 units