Question

1. Salem Industries sells products A, B and C. In 2019 the quantity sold, sales revenue, total variable costs products were:

	Products
	A	B	C
Quantity	2,000	2,000	6,000
Sales Revenue	600,000	675,000	1,125,000
Variable cost	480,000	405,000	750,000

Fixed costs were $612,000.

Required:

1. Compute Salem’s breakeven sales (units). Prove your answer.
2. Calculate the sales (in units) required to earn a target profit $153,000. Prove your answer.

Calculate the reduction needed in the fixed costs to break even at 5,000 units; in case the selling price increased by 4% and the variable cost decreased by 3% for the three products.        

Answer 1

Total quantity sold = 2000 + 2000 + 6000 = 10000

Sales mix of product A = ( 2000 10000) 100 = 20 %

Sales mix of product B = ( 2000 10000) 100 = 20%

Sales mix of product C = ( 6000 10000) 100 = 60 %

Weighted average contribution margin = 0.20 [ $ 600000 - $ 480000 ] + 0.20 [ $ 675000 - $ 405000 ] + 0.60 [ $ 1,125,000 - $ 750,000 ]

Weighted average contribution margin = $ 24000 + $ 54000 + $ 225000 = $ 303000

Weighted average contribution margin per unit = $ 303000   10000 units = $ 30.3

Break-even sales units = 20198 units

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Sales = 25247.5 units 25248 units

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New sales revenu

Weighted average contribution margin = 0.20 [ $ 624000 - $ 465600 ] + 0.20 [ $ 702000 - $ 392850 ] + 0.60 [ $ 1,170,000 - $ 727500 ] = $ 359010

Weighted average contribution margin per unit = $ 359010 10000 units = $ 35.9

Fixed costs = $ 179500  

Reduction needed in the fixed costs to break even at 5,000 units =  $612,000 -  $ 179500

Reduction needed in the fixed costs to break even at 5,000 units = $ 432,500