Question

The following information is for Alex Corp:

   Product X: Revenue                                             $12.00

                        Variable Cost $4.50

   Product Y: Revenue                                             $44.50

                        Variable Cost $9.50

   Total fixed costs                                                 $75,000

What is the breakeven point assuming the sales mix consists of two units of Product X and one unit of Product Y?

a. 842.5 units of Y and 1,685 units of X

b. 1 units of Y and 10,000 units of X

c. 1,500 units of Y and 3,000 units of X

d. 3,000 units of Y and 1,500 units of X

I got C, I need this second part below.

What is the operating income, assuming actual sales total 120,000 units, and the sales mix is two units of Product X and one unit of Product Y?

a. 1,925,000

b. 1,200,000

c. 2,000,000

d. 1,960,000

Answer 1

1. Calculation of breakeven point assuming the sales mix consists of 2 units of Product X and 1 unit of Product Y:

Weighted average Contribution margin per unit is:

Particulars	Product X	Product Y	Total
Selling price per unit	$12	$44.50
Less: Variable cost per unit	$4.50	$9.50
Contribution margin per unit	$7.50	$35
Sales Mix	2	1	3
Contribution margin (Contribution margin per unit x Sales Mix)	$15	$35	$50
Weighted average Contribution margin per unit (Contribution margin / Sales mix)		$16.67

Given fixed cost = $75,000

Breakeven point for the company = Fixed cost /  Weighted average Contribution margin per unit

= $75,000 / $16.67 = 4,500 units

Breakeven point for Product X = 4,500 units x (2/3) = 3,000 units

Breakeven point for Product Y = 4,500 units x (1/3) = 1,500 units

Therefore, the correct answer is Option c.

2. Calculation of operating income, assuming actual sales total 120,000 units, and the sales mix is two units of Product X and one unit of Product Y:

Number of units sold of Product X = 120,000 x (2/3) = 80,000 units

Number of units sold of Product Y = 120,000 x (1/3) = 40,000 units

Particulars	Product X	Product Y	Total
Sales units	80,000	40,000	120,000
Selling price per unit	$12	$44.50
Less: Variable cost per unit	$4.50	$9.50
Contribution margin per unit	$7.50	$35
Total Contribution (Sales units x Contribution margin per unit)	$600,000	$1,400,000	$2,000,000
Less: Fixed cost			$75,000
Operating income			$1,925,000

Therefore, from the above the correct answer is $1,925,000

Correct answer is option a.