Question

Multiple Product Break-Even and Net Income Planning
Madison Company manufactures and sells the following three products:

	Red	Blue	Green
Unit sales	20,000	30,000	50,000
Unit sales price	$30	$62	$18
Unit variable cost	$18	$38	$14

Assume that total fixed cost is $324,800.

a. Compute the net income before income tax based on the sales volumes shown above.

	Red	Blue	Green
Unit contribution margin	Answer	Answer	Answer
Total contribution margin	Answer	Answer	Answer

Net income before income tax $Answer

b. Compute the break-even point in total dollars of revenue and in specific unit sales volume for each product.
Enter product mix answers in decimal form.

Product	Product Mix	Contribution Margin per unit	Weighted average unit contribution margin
Red	Answer	Answer	Answer
Blue	Answer	Answer	Answer
Green	Answer	Answer	Answer
			Answer

Break-even Answer units

Product	Break -even Units	Unit Sales Price	Break-even Sales Revenue
Red	Answer	Answer	Answer
Blue	Answer	Answer	Answer
Green	Answer	Answer	Answer
			Answer

c. Prove your break-even calculations by computing the total contribution margin related to your answer in requirement (b).

Product	Break -even Units	Unit Contribution Margin	Total Contribution Margin
Red	Answer	Answer	Answer
Blue	Answer	Answer	Answer
Green	Answer	Answer	Answer
			Answer

Answer 1

a. Compute the net income before income tax based on the sales volumes shown above.

	Red	Blue	Green
Unit contribution margin	30-18 = 12	62-38 = 24	18-14 = 4
Total contribution margin	12*20000 = 240000	24*30000 = 720000	4*50000 = 200000

Net income before income tax = (240000+720000+200000)-324800 = 835200

b. Compute the break-even point in total dollars of revenue and in specific unit sales volume for each product.
Enter product mix answers in decimal form.

Product	Product Mix	Contribution Margin per unit	Weighted average unit contribution margin
Red	0.20	12	2.4
Blue	0.30	24	7.2
Green	0.50	4	2
			11.60

Break-even = 324800/11.60 = 28000 Units

Product	Break -even Units	Unit Sales Price	Break-even Sales Revenue
Red	28000*20% = 5600	30	168000
Blue	8400	62	520800
Green	14000	18	252000
			940800

c. Prove your break-even calculations by computing the total contribution margin related to your answer in requirement (b).

Product	Break -even Units	Unit Contribution Margin	Total Contribution Margin
Red	5600	12	67200
Blue	8400	24	201600
Green	14000	4	56000
			324800