Question

PB8.

LO 3.4Tim-Buck-II rents jet skis at a beach resort. There are three models available to rent: Junior, Adult, and Expert. The rental price and variable costs for these three models are as follows:



The current product mix is 5:4:1. The three models share total fixed costs of $114,750

Calculate the sales price per composite unit.
What is the contribution margin per composite unit?
Calculate Tim-Buck-II’s break-even point in both dollars and units.
Using an income statement format, prove that this is the break-even point.

Answer 1

Products Selling price Unit variable cost

$ $

Junior 50 15

Adult 75 25

Expert 110 60

Total 235 100

The sales price per composite unit = $235

The contribution margin per composite unit

= Composite selling price - Composite unit variable cost

= $235 - $100

= $135

Break-even point in units

= Fixed cost

Contribution per unit

= $114,750

$135

= 850 units

Break-even point in dollars

= Break-even point in units x Composite selling price

= 850 units x $235

= $199,750

Income Statement

$

Total contribution ($135 x 850 units) 114,750

Less: Fixed cost 114,750

Net profit 0

Step-by-step explanation:

Sales price per composite unit is the aggregate of all the selling prices.

Contribution margin per composite unit equals composite selling price minus composite unit variable cost.

Break-even point in units is fixed cost divided per composite contribution margin per unit.

Break-even point in dollars equal break-even point in units multiplied by selling price.

Income statement is prepared by deducting the total fixed cost from the total contribution.