Question

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $370 and has a unit contribution margin of $140; the Adult model sells for $920 and has a unit contribution margin of $485; and the Recreational model sells for $1,070 and has a unit contribution margin of $535. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,570,000, calculate the firm's break-even point in composite units (rounded to the nearest whole unit). Multiple Choice 16,550 composite units. 794 composite units. 1,430 composite units. 397 composite units. 8,275 composite units.

Answer 1

794 composite units.

Step-by-step explanation:

Calculation to determine the firm's break-even point in composite units

First step

Contribution Margin per Composite Unit:

Youth model $700

($140× sales mix of 5 )

Adult model model $4,365

($485× sales mix of 9)

Recreational model $3,210

( $535 × sales mix of 6 )

Contribution Margin per Composite Unit=8,275

($700+$4,365+$3,210)

Now let determine the Break-even Sales in Composite Units using this formula

Break-even Sales in Composite Units = Total Fixed Costs/Contribution Margin per Composite Unit

Let plug in the formula

Break-even Sales in Composite Units = $6,570,000/$8,275

Break-even Sales in Composite Units = $793.9

Break-even Sales in Composite Units = 794 composite units

Therefore the firm's break-even point in composite units is 794 composite units.