Question

a) Candy Co has the following sales mix for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted average contribution margin is $100. How many units of a product A must be sold to break even?

b) Knotty Co sells desks at $480 per desk. The variable costs are $380 per desk. Total fixed costs for the period are $456,800. The break even sales in units are _____?

c) Nick's shows sales of $200,000, manufacturing costs of $100,000 (30% variable), and selling and administrative costs of $100,000 (40% fixed). If sales equal to production, total contribution margin would be $____?

d) Candy Co expects to sell 19,000 units. Total fixed costs are $84,000 and the contribution margin per unit is $6.00. The margin of the safety in ratio is ___?

e) Walnuts Co wishes to earn after tax net income of $18,000. Total fixed costs are $84,000 and the contribution margin is $6.00 per unit. Walnuts Co's tax rate is 40%. The number of units that must be sold to earn the targeted net income is _____ units.

Answer 1

Solutions a):- Total break even units = Fixed cost / weighted average contribution per unit= $ 400000/ 100= 4000 units

Unit of products A in break even units

= 20% of 4000 units= 800 units

Solutions b):- Contribution per unit = sell per unit - variable cost per unit = $ 480- $ 380= $ 100

Break even sales in unit = Total Fixed cost/ Contribution per unit

= $ 456800/100 = 4568 units

Solution c):-

Sales	$ 200000
Less:- Manufacturing variable cost ( $100000 X 30%)	30000
Selling and administration variable cost ( $ 100000 X 60% ) ,40% are fixed	60000
Contribution margin	$110000

D​​​):- Solution:- Break even sales in unit = Fixed cost / contribution margin per unit =$ 84000/ $ 6 = 14000 units

Margin of safety in units = Total sales unit - break even sales = 19000 units - 14000 units = 5000 units

Margin of safety ratio= margin of safety/ sales X 100

= ( 5000/ 19000) X 100= 26.32 %

e) :- Solution:-

No. Of unit have to sold to earn targeted net income

=( Fixed cost+ desired income )/contribution per unit

=( $ 84000+ $ 18000)/$ 6 per unit = 17000 units