Question

Perez Company manufactures two products. The budgeted per-unit contribution margin for each product follows: Super Supreme Sales price $ 90 $ 126 Variable cost per unit (59 ) (77 ) Contribution margin per unit $ 31 $ 49 Perez expects to incur annual fixed costs of $185,640. The relative sales mix of the products is 70 percent for Super and 30 percent for Supreme. Required Determine the total number of products (units of Super and Supreme combined) Perez must sell to break even. How many units each of Super and Supreme must Perez sell to break even?

Answer 1

Answer:

(a) 5,100 units

(b) (i) 3,570 Units

    (ii) 1,530 Units

Explanation:

Weighted Contribution Margin Per Unit for Super:

= Contribution margin per unit × Sales Mix

= $31 × 70%

= $21.7

Weighted Contribution Margin Per Unit for Supreme:

= Contribution margin per unit × Sales Mix

= $49 × 30%

= $14.7

Total = Weighted Contribution Margin Per Unit for Super + Weighted Contribution Margin Per Unit for Supreme

         = $21.7 + $14.7

         = $36.4

(a) $Total\ Units\ to\ Break\ Even=\frac{Fixed\ costs}{Total\ Weighted\ Contribution\ Margin\ Per\ Unit}$

$Total\ Units\ to\ Break\ Even=\frac{185,640}{36.4}$

                                                      = 5,100 units

(b) Hence,

Units of Product Super = Total units to break even × sales mix

                                      = 5,100 Units × 70%

                                       = 3,570 Units

Units of Product Supreme = Total units to break even × sales mix

                                             = 5,100 Units × 30%

                                              = 1,530 Units