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In: Accounting

The Terrence Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming...

The Terrence Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year:

Baubles Trinkets
15,000 units 7,500 units
Sales $ 15,000 $ 15,000
Costs:
Fixed $ 3,300 $ 9,570
Variable 6,750 10,050 3,750 13,320
Income before taxes $ 4,950 $ 1,680


How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used with the sales mix remaining constant?

Solutions

Expert Solution

Particulars Baubles Trinkets
Sale price per unit (15000/15000) (15000/7500)
Sale price per unit 1 2
Variable Cost per unit (6750/15000) (3750/7500)
Variable Cost per unit 0.45 0.5
Ratio of Sales                15,000 : 7500
Ratio of Sales                           2 : 1
Let the break even sales quantity for trinkets be 'X'
Therefore, break even sales quantity for baubles be '2X'
Fixed Cost = (3300+9570)
Fixed Cost = 12870
Fixed Cost/(Sales - Variable Cost) = 1
12870/((2X*1+X*2)-(2X*.45+X*.5)) = 1
12870/(4X-1.4X) = 1
12870/2.6X = 1
X = 4950
Baubles Trinkets
Break even sales quantity 2X X
Break even sales quantity to be sold 9900 4950
Checking for Answer
Sales 9900 9900
Variable Cost 4455 2475
Contribution 5445 7425
Fixed Cost 3300 9570
Profit/Loss 2145 -2145
Total Profit = 0

ekkarill92 answered 7 months ago
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