Question

Serial Problem Business Solutions LO P4 Business Solutions sells upscale modular desk units and office chairs in the ratio of 3:2 (desk unit:chair). The selling prices are $1,310 per desk unit and $560 per chair. The variable costs are $810 per desk unit and $310 per chair. Fixed costs are $180,000. Required: 1. Compute the selling price per composite unit. 2. Compute the variable costs per composite unit. 3. Compute the break-even point in composite units. 4. Compute the number of units of each product that would be sold at the break-even point.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

The selling prices are $1,310 per desk unit and $560 per chair. The variable costs are $810 per desk unit and $310 per chair. Fixed costs are $180,000.

The company sells 3 deks per 2 chairs.

Sales proportion:

Desks= 3/5= 0.6

Chairs= 2/5= 0.4

1) Selling price per composite unit= sales proportion*selling price

Selling price per composite unit= 0.6*1,310 + 0.4*560

Selling price per composite unit=  $1,010

2) Variable cost per composite unit= sales proportion*unitary variable cost

Variable cost per composite unit= 0.6*810 + 0.4*310

Variable cost per composite unit= 610

3) Break-even point (units)= Total fixed costs / Weighted average contribution margin

Break-even point (units)= 180,000/ (1,010 - 610)

Break-even point (units)= 450 units

4) Number of units for each product:

Desks= 0.6*450= 270

Chairs= 0.4*450= 180