Question

Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows:

	Brighter		Cleaner
Sales volume in units	400		600
Unit sales price	$750		$1,000
Unit variable cost	300		450

The number of machine hours to produce one unit of Brighter is 1, while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $265,200.

Required:

1. Determine the breakeven point in total units for Smith Company, based on the assuming that the sales mix (on the basis of relative sales volume in units) remains constant. Use the weighted-average contribution margin approach.

2. At this breakeven level, how many units of each product must be sold? Due to rounding, the total breakeven units for Requirement 2 may differ slightly than in Requirement 1.

3. Using the Indirect approach, what is the overall breakeven point in sales dollars? Use the breakeven units computed in Requirement 1.

Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows: Brighter Cleaner Sales volume in units 400 600 Unit sales price $750 $1,000 Unit variable cost 300 450 The number of machine hours to produce one unit of Brighter is 1, while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $265,200. Required: 1. Determine the breakeven point in total units for Smith Company, based on the assuming that the sales mix (on the basis of relative sales volume in units) remains constant. Use the weighted-average contribution margin approach. 2. At this breakeven level, how many units of each product must be sold? Due to rounding, the total breakeven units for Requirement 2 may differ slightly than in Requirement 1. 3. Using the Indirect approach, what is the overall breakeven point in sales dollars? Use the breakeven units computed in Requirement 1.

Answer 1

Answer
	Products
Particulars	Brighter	Cleaner	Total
Units	400	600	1,000
Sales	300,000	600,000	900,000
(units*unit selling price)
Variable Cost	120,000	180,000	300,000
(units*unit variable cost)
Contribution	180,000	420,000	600,000
(Sales less Varaible Cost)
Fixed Cost	265200
Total units	1000
Contribution margin per unit	600
1)Break Even in units	Fixed Cost/Contribution margin per unit
	265200/600
Units	442
2)Machine hours in each unit of Brighter	1	33%
Machine hours in each unit of Cleaner	2	67%
Total	3
Break even	442
Brigher (units)	442*33%	146
Cleaner (units)	442*67%	296
Total		442
3) Breakeven Sales in dollars	Fixed Cost/contribution margin ratio
Contribution Margin Ratio	contribution margin/sales
	600000/900000
	66.67%
Break even Sales in dollars	265200/66.67%
	397,780