Question

The Ann Company produces two types of rulers, a 25 foot (X1) and a 50 foot (X2). Prices, costs and mix ratios are as follows:

Product	Sales Price	Variable Cost Per Unit	Budgeted Sales Mix in Dollars
X1 X2	$10 4	$6.50 2.80	20% 80%

Total fixed costs amount to $62,000 and the tax rate is 45%.

Required:

a. Find the break-even point in dollars of X1 and X2.

b. If Ann Company purchased a piece of equipment that added an additional $3,000 to fixed costs, how many additional units of each product would be needed to break even?

Answer 1

Weighted Contribution margin per unit
			X1	X2	Total
Selling price		10	4
Less: variable cost		6.5	2.8
Contribution margin per unit	3.5	1.2
Multiply: Sales mix percentage	20%	80%
Weighted contribution margin per unit	0.7	0.96	1.66
Weighted Contribution margin ratio
			X1	X2	Total
Selling price		10	4
Less: variable cost		6.5	2.8
Contribution margin per unit	3.5	1.2
Divide: Selling price		10	4
Contribution margin ratio	35%	30%
Multiply: Sales mix percentage	20%	80%
Weighted contribution margin ratio	7%	24%	31%
Req a.
Total Fixed cost			62000
Divide: Weighted contribution margin ratio	31%
Total Break even sales revenue		200000
Break even sales for Product X (200000*20%)	40,000
Break even sales for Product X2 (200000*80%)	1,60,000
Req b.
Additional fixed cost				3000
Divide: Weighted average contribution margin per unit	1.66
Additional units to be sold			1807
Additional units of Product X1 to be sold:	(1807*20%)	361	units
Additional units of Product X2 to be sold:	(1807*80%)	1446	units