Question

Hat Company sells two types of hats: knit hats with a selling price of $15 and variable costs of $5, and hard hats with a selling price of $25 and variable costs of $10. Knit hats comprise 80% of all sales. If fixed costs are $22,000, how many knit hats and hard hats must be sold for the Hat Company to break even

Answer 1

Answer:

Knit units = 1,600

Hard units = 400

Explanation:

The calculation of sold of knit hats and hard hats is shown below:

For computing the  sold of knit hats and hard hats first we need to find out the total of  Knit Hats  and Hard Hats and secondly we need to find out the Break even sales in units

                                Knit Hats        Hard Hats        Total

Sales a                       $15.00              $25.00

Less: Variable

Expenses b                 $5.00             $10.00

Contribution Margin   $10.00           15.00

c = a - b

Weight d                       0.80               0.20

Weighted Contribution 8.00              11.00

e = c × d

Now,

Break even sales in units  = Fixed cost ÷ Contribution margin per unit

=$22,000 ÷ 11

= 2,000 units

So,

Knit Hats to be sold = Break even sales in units × Knit percentage

=2000 × 80%

= 1,600 units

Hard Hats to be sold = Break even sales in units × Hard hats percentage

= 2,000 × 20%

= 400 units