Question

usiness Solutions sells upscale modular desk units and office chairs in the ratio of 3:2 (desk unit:chair). The selling prices are $1,250 per desk unit and $500 per chair. The variable costs are $750 per desk unit and $250 per chair. Fixed costs are $120,000. 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 w

Answer 1

1. Selling price per composite unit = Price of desk unit * (Ratio of desk unit) + Price of chair * (Ratio of chair)

= $1250*(3) + $500*(2)

= $3,750 + $1,000

= $4,750

2. Variable costs per composite unit = Variable cost per desk unit * (Ratio of desk unit) + Variable cost per chair * (Ratio of chair)

= $750*(3) + $250*(2)

= $2,250 + $500

= $2,750

3. Break even point in composite units = Fixed costs / (Composite selling price - Composite variable cost)

= $120,000 / ($4750 - $2750)

= $120,000 / $2000

= 60 units

4. Number desk units sold at break even point = 60 composite units* 3 per composite unit = 180 units

Number of chairs sold at break even point = 60 composite units * 2 per composite unit = 120 units