Question

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z McCoy must sell to break even.

1,350.

6,200.

10,463.

1,550.

6,750.

Answer 1

The correct answer is none of the answer is correct as it is 3,100 units

Step-by-step explanation:

Contribution margin = (Selling price per unit of product A - Variable cost per unit of product A) × Sales Mix + (Selling price per unit of product Z - Variable cost per unit of product Z) × Sales Mix

= ($75 - $35) × 4 + ($95 - $40) × 2

= $40 × 4 + $55 × 2

= $160 + $110

= $270

Compute break even sales as:

Break even sales = Fixed Cost / Contribution margin

$418,500 / $270

= 1,550 units

Computation of the number of units must be sell to break even:

Break even sales of product Z = Sales mix of product Z × Break even sales in total

= 2 × 1,550 units

= 3,100 units