Question

David Company has plans to produce 100,000 units of Product A and 200,000 units of Product B. The planned results of a month's operation are as follows: A B Amount Per Unit Amount Per Unit Total Sales revenue $120,000 $1.20 $80,000 $0.40 $200,000 Variable expense 60,000 0.60 60,000 0.30 120,000 Contribution margin $60,000 $0.60 $20,000 $0.10 $80,000 Fixed expense $50,000 Net income $30,000 The break-even point in units for each product is closest to

Answer 1

Answer:

Break-even point= 114943 units

Product A:  77012 units

Product B:  37931 units

Explanation:

Giving the following information:

David Company has plans to produce:

Product A: 100,000 units.

Product B: 200,000 units.

Sales revenue:

Product A= 100,000*1.20= $120,000

Product B= 200,000*0.40= $80,000

Total= $200,000

Varable expense=

Product A= 0.60*100,000= $60,000

Prodcut B= 0.30*200,000= $60,000

Total= $120,000

Contribution Margin= $80,000

Fixed costs= $50,000

Net Income= $30,000

The formula of the break-even point with multiple products is:

Break-even point= Total fixed costs/ (weighted average selling price/ weighted average variable expenses)

First, we have to calculate the sales percentage of individual products in the total sales mix.

Total sales= 300,000 units

A: 200,000/300,000= 0.67

B:100,000/300,000=0.33

Weighted average selling price= (Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B)= (1.20*0.67)+(0.40*0.33)= $0.936

Weighted average variable expenses= (Variable costs of product A × Sales percentage of product A) + (Variable costs of product B × Variable expenses of product B)= (0.60*0.67) + (0.30*0.33) = $0.501

Now, we can calculate the break-even point:

Break-even point= 50,000/(0.936-0.501)= 114943 units

Product A: 0.67*114943= 77012 units

Product B: 0.33*114943= 37931 units