Question

Malibu, Inc., which has fixed costs of $2,978,000, sells three products whose sales price, variable cost per unit, and percentage of sales units are presented in the table below.

	Product A			Product B			Product C
Sales Price	$	8.00		$	13.00		$	30.00
Variable Cost	$	5.00		$	5.00		$	16.00
Product Mix		60	%		20	%		20	%

a. What is the weighted average unit contribution margin? (Round your answer to 2 decimal places.)

  

b. At the break-even point, how many units of Product A must be sold? (Round intermediate calculations to 2 decimal places. Round your answer to the nearest whole number.)

c. To make a profit of $1,115,000, how many units of Product B must be sold? (Round intermediate calculations to 2 decimal places. Round your answer to the nearest whole number.)

Answer 1

Solution:

Part a –

	Product A	Product B	Product C
Unit Selling Price	$8.00	$13.00	$30.00
Less: Variable Costs	$5.00	$5.00	$16.00
Contribution Margin per unit	$3.00	$8.00	$14.00
x Product/Sales Mix Ratio	0.60	0.20	0.20
	$1.80	$1.60	$2.80
Weighted Average Contribution Margin per unit 1.8+1.6+2.8)	$6.20

Weighted Average Contribution Margin Per Unit = $6.20

Part b –

Break Even Point for Company in Units = Total Fixed Cost $2,978,000 / Weighted Average CM Per Unit $6.20

= 480,322.58

At the break-even point, number of units of Product A must be sold = Break Even Point for Company in Units 480,322.58 * Product Mix Ratio for Product A 60%

= 288,194 Units

Part c –

To make a profit of $1,115,000, number of units of Product B must be sold

Break Even Point for Company in Units to achieve profit $1,115,000 = (Total Fixed Cost $2,978,000 + Profit $1,115,000) / Weighted Average CM Per Unit $6.20

= $4,093,000 / $6.20

= 660,161.29 Units

Number of Units of Product B to be sold to make a profit of $1,115,000 = Break Even Point for Company in Units 660,161.29 * Product Mix Ratio for Product B 20%

= 132,032 Units

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