Question

Exercise 3-15A (Algo) Multiple product break-even analysis LO 3-6 Fanning Company manufactures two products. The budgeted per-unit contribution margin for each product follows: Sales price Variable cost per unit Contribution margin per unit Super $ 91 (68) $ 23 Supreme $126 (82) $ 44 Fanning expects to incur annual fixed costs of $155,290. The relative sales mix of the products is 70 percent for Super and 30 percent for Supreme Required a. Determine the total number of products (units of Super and Supreme combined) Fanning must sell to break even. b. How many units each of Super and Supreme must Fanning sell to break even? (For all requirements, do not round intermediate calculations.) a Total number of products b. Product Super Product Supreme units units units

Answer 1

To determine the profit-maximizing quantity of output, calculate the total revenue, marginal revenue, total cost, and marginal cost. The profit-maximizing quantity is where marginal revenue equals marginal cost.

Step-by-step explanation:

To determine the profit-maximizing quantity of output, we need to calculate the total revenue, marginal revenue, total cost, and marginal cost for each output level. The table below shows the calculations:

Output Level Total Revenue Marginal Revenue Total Cost Marginal Cost

1 $20 $20 $20 $20

2 $40 $20 $45 $25

3 $60 $20 $80 $35

4 $80 $20 $130 $50

5 $100 $20 $210 $80

The profit-maximizing quantity of output is the level where marginal revenue equals marginal cost. From the table, we can see that this occurs at an output level of 2 units. At this level, the firm will maximize its profits.