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Neporo4naja [7]
3 years ago
5

Problem 18-7A Break-even analysis with composite units LO P4 Patriot Co. manufactures and sells three products: red, white, and

blue. Their unit selling prices are red, $20; white, $35; and blue, $65. The per unit variable costs to manufacture and sell these products are red, $12; white, $22; and blue, $50. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $250,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $6; white, by $12; and blue, by $10. However, the new material requires new equipment, which will increase annual fixed costs by $50,000.
Required:
1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product.
2. Assume if the company uses the new material, determine its new break-even point in both sales units and sales dollars of eac individual product.
Business
1 answer:
stira [4]3 years ago
5 0

Answer:

Instructions are below.

Explanation:

Giving the following information:

Selling prices:

red= $20

white= $35

blue= $65.

Unitary variable cost:

red= $12

white= $22

blue= $50

Sales proportion:

red= 5/11= 0.46

white= 4/11= 0.36

blue= 2/11= 0.18

Fixed costs= $250,000

1) To calculate the break-even point in units, we need to use the following formula:

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

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

Weighted average contribution margin= (0.46*20 + 0.36*35 + 0.18*65) - (0.46*12 + 0.36*22 + 0.18*50)= 33.5 - 22.44= 11.06

Break-even point (units)= 250,000/11.06= 22,604 units

<u>Sales proportion (units):</u>

red= 0.46*22,604= 10,398

white= 0.36*22,604= 8,137

blue= 0.18*22,604= 4,069

To calculate the break-even point in dollars, we need to use the following formula:

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

Break-even point (dollars)= 250,000 / (11.06/33.5)

Break-even point (dollars)= $757,233.27

<u>Sales proportion (dollars):</u>

red= 0.46*757,233.27= $348,327.30

white= 0.36*757,233.27= 272,603.98

blue= 0.18*757,233.27= 136,301.99

2)Unitary variable cost:

red= $6

white= $10

blue= $40

Fixed costs= 300,000

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

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

Weighted average contribution margin= (0.46*20 + 0.36*35 + 0.18*65) - (0.46*6 + 0.36*10 + 0.18*40)= 33.5 - 13.56= $19.94

Break-even point (units)= 300,000/19,94= 15,045 units

Sales proportion (units):

red= 0.46* 15,045= 6,921

white= 0.36* 15,045= 5,416

blue= 0.18* 15,045= 2,708

To calculate the break-even point in dollars, we need to use the following formula:

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

Break-even point (dollars)= 300,000 / (19.94/33.5)

Break-even point (dollars)= $504,012

Sales proportion (dollars):

red= 0.46*504,012= 231,845.52

white= 0.36*504,012= 181,444.32

blue= 0.18*504,012= 90,722.16

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Answer:

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Payoff per share holder = EAT / Number of shares. At Indifference point, per share payoff should be equal in both cases

EBIT * 0.66 / 4,200 = (EBIT - (37,000*8%) * 0.66) / 3,800

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3 0
3 years ago
Jameson Corporation was organized on May 1. The following events occurred during the first month. Received $68,000 cash from the
monitta

Answer:

Explanation:

The journal entries are shown below:

1.  Cash A/c Dr $68,000

                  To Common stock                      $5,150

                   To Additional paid-in capital     $62,850

(Being the cash is received)

The common stock value is computed by

= Number of investors × number of shares × par value

= 5 investors  × 103 shares × $10

= $5,150

And, the remaining balance is transferred to additional paid-in capital

2. No journal entry required

3.  Cash A/c Dr $17,000

            To Long term note payable A/c $17,000

(being cash is borrowed for long term payable)

4.  Equipment A/c Dr $18,000

        To Cash A/c                         $1,500

        To Short term note payable $16,500

(Being equipment is purchased for cash and short term note payable)

5.  Short term Notes receivable A/c Dr $1,600

           To Cash                                                       $1,600

(Being cash is paid)

6. Store fixtures A/c Dr $19,000

            To Cash A/c                       $19,000

(being cash is paid for store fixtures)

7 0
3 years ago
An international children’s charity collects donations, which are used to buy clothing and toys for children in need. The charit
MatroZZZ [7]

Answer:

Required 1

<u>General Journal</u>

Cash $8,500 (debit)

Donations Revenue $8,500 (credit)

<em>Cash and Checks received as Donation Revenue</em>

<em />

Wages Expenses $3,000 (debit)

Cash $3,000 (credit)

<em>Wages to employee paid</em>

<em />

Note Payable $3,420 (debit)

Cash $3,420 (credit)

<em>Repayment of Short Term Loan</em>

<em />

Supplies $4,920 (debit)

Cash $2,080 (credit)

Note Payable $2,840 (credit)

<em>Purchase of Toys on cash and on credit</em>

<em />

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Donations Revenue $4,020 (credit)

<em>Donations revenue received in form of Toy Supplies</em>

Required 2

Net Income is $9,520

Explanation:

<u>Calculation of Charity’s preliminary net income.</u>

Donations Revenue ($8,500 + $4,020)  $12,520

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Net Income/ (Loss)                                    $9,520

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Answer:

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