Question

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z McCoy must sell to break even.

Answer 1

3100 units of Product Z

Explanation:

The ratio is 4 is to 2, that means:

4 + 2 = 6 parts total

Now,

We have to cover the fixed cost of 418,500 from profits, that is SP - VC

Where SP is Selling Price and VC is Variable Cost

Product A:

SP = 75

VC = 35

Profit = 40

Product B:

SP = 95

VC = 40

Profit = 55

So, we can sell "4x" of product A and "2x" of product B, and create the equation:

`4x(40) + 2x(55) = 418,500`

Now, we solve for x:

`4x(40) + 2x(55) = 418,500\\160x + 110x = 418,500\\270x=418500\\x=1550`

The amount of Product Z was taken as "2x", so the quantity of Product Z would be:

2(1550) = 3100 units of Product Z