Question

In: Accounting

Multiple-Product Breakeven Parker Pottery produces a line of vases and a line of ceramic figurines. Each...

Multiple-Product Breakeven

Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost equals $30,000. Parker's accountant has begun to assess the profitability of the two lines and has gathered the following data for last year:

Vases Figurines
Price $40 $70
Variable cost 30 42
Contribution margin $10 $28
Number of units 1,000 500

Required:

1. Compute the number of vases and the number of figurines that must be sold for the company to break even.

Break-even vases units
Break-even figurines units

2. Parker Pottery is considering upgrading its factory to improve the quality of its products. The upgrade will add $5,260 per year to total fixed cost. If the upgrade is successful, the projected sales of vases will be 1,500, and figurine sales will increase to 1,000 units. What is the new break-even point in units for each of the products?

Break-even vases units
Break-even figurines units

Solutions

Expert Solution

Unit sales to break-even=Fixed expenses/unit contribution margin

1.Calculation of number of vases that must be sold for the company to break-even:

Unit sales to break-even=($30,000/$48)*2

Unit sales to break-even=1,250 vases

Calculation of number of figurines that must be sold for the company to break-even:

Unit sales to break-even=$30,000/48

Unit sales to break-even=625 figurines

Working note:

The number of vases sold are 1000 and number of figurines sold are 600 so the sales mix would be 2:1.

2.

Calculation of number of vases that must be sold for the company to break-even:

Unit sales to break-even=(($30,000+$5,260)/$86)*3

Unit sales to break-even=1,230 vases

Calculation of number of figurines that must be sold for the company to break-even:

Unit sales to break-even=(($30,000+$5,260)/$86)*2

Unit sales to break-even=820 figurines

Working note:

The number of vases sold are 1500 and number of figurines sold are 1000, so the sales mix is 3:2.

ekkarill92 answered 2 years ago
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