Question

Business Solutions sells upscale modular desk units and office chairs in the ratio of 4:2 (desk unit:chair). The selling prices are $1,220 per desk unit and $470 per chair. The variable costs are $720 per desk unit and $220 per chair. Fixed costs are $312,500. Required: 1. Compute the selling price per composite unit (Omit the S sign in your response.) Selling price $ 5820 2. Compute the variable costs per composite unit- (Omit the $ sign in your response.) Variable costs $ 3. Compute the break-even point in composite units. Break-even point composite units 4. Compute the number of units of each product that would be sold at the break-even point. Desk Chairs Unit sales units units I have completed #'s 1 & 2, but I need help with the break-even point! I need Questions 3 & 4!

Answer 1

Answer:

Selling price: $5,820

Variable cost: $3,320

BEP= 125 units (500 desks and 250 chairs)

Step-by-step explanation:

We need to calculate the break even point.

In this case, we have composite unit made by two products wich have a ratio of 4:2. Thar means 4 desks and 2 chairs per unit.

The selling price of this composite unit is:

$P=4*P_d+2*P_c=4*1220+2*470=5820$

The variable cost of the composite unit is:

$VC=4*VC_d+2*VC_c=4*720+2*220=3320$

To calculate the break even point, the unit will be the composite one  (4 desks and 2 chairs).

We know the fixed costs ($312,500) and the selling price and variable costs of each composite unit, so we are ready to calculate the BEP.

The BEP formula states that

$BEP=\frac{FC}{p-vc}=\frac{312500}{5820-3320}=\frac{312500}{2500}=125$

That means that the quantity needed to sell to start to have profits is 125 composite units.

That means 500 desks (125*4=500) and 250 chairs (125*2=250).