Question

Question #7:

The Trojan Company sells a product for $120 per unit. The variable cost is $40 per unit,

and fixed costs are $270,000. Determine the

(a) break-even point in sales units, and

(b) break-even points in sales units if the company desires a target profit of $36,000.

Question #8:

Active Kids manufactures Children’s bicycles. It has fixed costs of $5,360,000. Active Kid’s sales mix and contribution margin per unit are shown as follows:

                                       Sales Mix              Contribution Margin

Basic                                   20%                            $120

Cruiser                                55%                            $ 60

Trail                                     25%                            $ 40

Instructions

Compute the number of each type of bicycle that the company would need to sell in order to break even under this product mix.

Answer 1

Answer to Question 7:

(a) Calculation of break-even point in sales units is as follows:

Breakeven point in sales units = Fixed Cost / Contribution Margin per unit

= $ 270,000 / $ 80

= 3375 units

Thus, Breakeven point in sales is 3375 units

Working note:

Calculation of Contribution Margin per unit is as follows:

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit

= $ 120 - $ 40

= $ 80

(b) Calculation of sales units if the company desires a target profit of $36,000 is as follows:

Sales units for target profit = ( Fixed Cost + Target Profit ) / Contribution Margin per unit

= ( $ 270,000 + $ 36,000 ) / $ 80

= $ 306,000 / $ 80

= 3825 units

Thus, Trojan Company need to sale 3825 units in order to earn desired profit of $ 36,000

Answer to Question 8:

Computtion of the number of each type of bicycle that the company would need to sell in order to break even under this product mix is as follows:

	Basic	Cruiser	Trail
Total Break even units	80,000	80,000	80,000
* Sales Mix Percentange	20%	55%	25%
Units at Break-even point	16,000	44,000	20,000

Working note:

1. Calculation of Break-even units of sales mix is as follows:

Break-even units of sales mix = Fixed cost / weighted-average contribution margin per unit

= $ 53,60,000 / $ 67

= 80,000 Units

2. Calculation of weighted-average contribution margin per unit:

	Basic	Cruiser	Trail
Contribution Margin per unit	$                     120	$            60	$            40
* Sales Mix Percentange	20%	55%	25%
weighted-average contribution margin per unit	$                        24	$            33	$            10

Thus, Weighted average contribution margin per unit = $ 67 ( $ 24 + $ 33 + $ 10 )