Question

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $460 and has a unit contribution margin of $185; the Adult model sells for $1,010 and has a unit contribution margin of $530; and the Recreational model sells for $1,160 and has a unit contribution margin of $580. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,660,000, calculate the firm's break-even point in composite units (rounded to the nearest whole unit). Multiple Choice 9,175 composite units. 18,350 composite units. 726 composite units. 1,655 composite units. 363 composite units.

Answer 1

First calculate the weighted contribution margin per composite unit as follows:

Weighted contribution per composite unit = ($185 x 5) + ($530 x 9) + ($580 x 6) = $9,175

Now calculate the breakeven point in composite units as follows:

Breakeven point in composite units = Annual fixed cost / Weighted contribution per composite unit

                                                         = $6,660,000 / $9,175

                                                         = 726

Therefore, the correct answer is 726 composite units.