Question

Turner Inc. produces two products P1 and P2. The company has provided you with the following information. Assume that the current sales volume of P1 and P2 reflects the long run sales mix of the firm.

P1 P2
Selling price per unit $30 $60
Variable cost per unit $10 $30
Numberof units sold 9,000 6,000
Total fixed costs $240,000
Select ALL statements that are true. All numbers in the answer choices are rounded off to 2 decimals. Breakeven volume in units is rounded off to the next higher integer.
A. 40% of Turner's revenue comes from P2
B. The operating leverage for Turner now is 0.47
C. Turner makes a contribution of $0. 57 per dollar of revenue, on the average.
D. Turner will breakeven when it reaches a revenue of $420,000.
E. The breakeven volume for Turner is 9,334 units

Answer 1

B. The operating leverage for Turner now is 0.47 ⇒ TRUE

operating leverage = fixed costs / total costs = $240,000 / $510,000 = 0.47

C. Turner makes a contribution of $0. 57 per dollar of revenue, on the average. ⇒ TRUE

total contribution margin = ($20 x 9,000) + ($30 x 6,000) = $180,000 + $180,000 = $360,000

total revenue = $630,000

contribution margin per $ of revenue = $360,000 / $630,000 = $0.57

D. Turner will break even when it reaches a revenue of $420,000. ⇒ TRUE

break even point in $ = (6,000 x $30) + (4,000 x $60) = $180,000 + $240,000 = $420,000

Step-by-step explanation:

A. 40% of Turner's revenue comes from P2 ⇒ FALSE

total revenue = $270,000 + $360,000 = $630,000

revenue from P2 = $360,000, which represents 57.14% of total revenue

E. The breakeven volume for Turner is 9,334 units ⇒ FALSE

in order to calculate break even point, we can prepare a bundle of products = 3P1 + 2P2

contribution margin per bundle = $120

break even point = $240,000 / $120 = 2,000 bundles

6,000 P1 and 4,000 P2