Question

1. Eastwick produces and sells three products. Last month's results are as follows:

	P1			P2			P3
Revenues	$	100,000		$	200,000		$	200,000
Variable costs		40,000			140,000			80,000

Fixed costs total $200,000. What is Eastwick's break-even sales volume? (Assume the current product mix.)

a.$384,615.

b. $500,000.

c. $460,000.

d. $416,667.

2. Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

Sales				$	3,500,000
Cost of sales:
Direct Material	$	500,000
Direct labor		250,000
Variable Overhead		275,000
Fixed Overhead		600,000			1,625,000
Gross Profit				$	1,875,000
Selling and General & Admin. Exp.
Variable		750,000
Fixed		250,000			1,000,000
Operating Income				$	875,000

For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed costs.
The break-even point for next year would be:

a. $2,168,225.

b. $2,668,750.

c. $2,947,500.

d. $3,022,500.

Answer 1

Question 1

Correct answer---(d) $416,667

Working		P1	P2	P3	TOTAL
A	Revenues	$ 100,000.00	$          200,000.00	$ 200,000.00
B	Variable Cost	$    40,000.00	$          140,000.00	$    80,000.00
C = A - B	Contribution Margin	$    60,000.00	$             60,000.00	$ 120,000.00
D	Product Mix	20.00%	40.00%	40.00%	100%
E=C/A	Contribution margin ratio	60%	30%	60%
F=E x D	Weighted Average Contribution Margin Ratio	12.0%	12.0%	24.0%	48%

A	Total Fixed Cost	$ 200,000.00
B	Weighted Average Contribution Margin ratio	48%
C = A/B	Multi Product Break Even point	$ 416,667

Question 2

Correct answer---(a) $2168,225

	Current	Next year
Sales	$ 3,500,000.00	$   3,325,000.00
Less: Variable costs
Direct material	$     500,000.00	$       550,000.00
Direct labor	$     250,000.00	$       275,000.00
Variable overheads	$     275,000.00	$       302,500.00
Variable selling and administrative exp	$     750,000.00	$       825,000.00
Total Variable costs	$ 1,775,000.00	$   1,952,500.00
Contribution margin	$ 1,725,000.00	$   1,372,500.00
Fixed costs
fixed overheads	$     600,000.00	$       645,000.00
Fixed selling and administrative exp	$     250,000.00	$       250,000.00
Total fixed cost	$     850,000.00	$       895,000.00
Contribution margin ratio	49.29%	41.278%
Breakeven sales	$ 1,724,637.68	$   2,168,225.20