Question

Birch Manufacturers has provided the following information regarding the two products that it​ sells: Jet Boats Ski Boats Sales price per unit $ 8 comma 000 $ 24 comma 000 Variable cost per unit $ 6 comma 000 $ 16 comma 000 Annual fixed costs are $ 300 comma 000. How many units must be sold in order for Birch to break​ even, assuming that Birch sells five jet boats for every two ski boats​ sold? (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ unit.) A. 58 jet boats and 23 ski boats B. 12 jet boats and 7 ski boats C. 23 jet boats and 58 ski boats D. 7 jet boats and 12 ski boats

Answer 1

Answer:

A. 58 jet boats and 23 ski boats

Explanation:

Break even point is the level of activity at which a firm neither makes a profit nor a loss.

First determine the sales mix :

Note : Birch sells five jet boats for every two ski boats​ sold

thus the mix is 5:2

Then calculate the contribution per batch

Jet Boats = $8,000 - $6,000 =$2,000

Ski Boats = $24,000 - $ 16,000 = $8,000

Total Contribution per batch = ((5×$2,000) + (2 ×$8,000))

                                               = $ 26,000

Calculate the batch contribution

Break - even Point = Fixed Cost / Contribution per batch

                             = $300,000 /  ((5×$2,000) + (2 ×$8,000))

                             = $300,000 / $ 26,000

                             = 11.54

Use the sales mix to determine the units to break even in the batch

Jet Boats = 11.54 × 5

                = 57,7

                = 58

Ski Boats = 11.54 × 2

                = 23,08

                = 23

Thus the units sold to break even would be : 58 jet boats and 23 ski boats