Question

Monte Motors sells two different products. Following are the monthly revenues and costs. Product A Sales Quantity: 10,000 units Sales Price per Unit: $6.00 Variable Costs per Unit: $1.25 Product B Sales Quantity: 30,000 Units Sales Price per Unit: $2.50 Variable Costs per Unit: $0.75 Total fixed costs are $200,000. What is the break-even point for this company in units

Answer 1

80,000 units

Step-by-step explanation:

First, calculate the contribution margin of both products using the following formula

Contribution margin = Selling Price - Variable cost

Product A

CM = $6 - $1.25 = $4.75

Product B

CM = $2.5 - $0.75 = $1.75

Now calculate the Weighted average contribution margin

Weighted average contribution margin = ( $4.75 x 10,000 / ( 10,000 + 30,000 ) ) + ( $1.75 x 30,000 / ( 10,000 + 30,000 ) ) = $1.1875 + $1.3125 = $2.50

Use the following formula to calculate the breakeven point in unit

Breakeven point in unit = Fixed Cost / Weighted average contribution margin = $200,000 / $2.50 = 80,000 units