Question

National Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $46; white, $76; and blue, $101. The per unit variable costs to manufacture and sell these products are red, $31; white, $51; and blue, $71. Their sales mix is reflected in a ratio of 2:2:1 (red:white:blue). Annual fixed costs shared by all three products are $141,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $6; white, by $16; and blue, by $6. However, the new material requires new equipment, which will increase annual fixed costs by $11,000.

Required:
1.	Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round up your composite units to whole number. Omit the "$" sign in your response.)

Break-Even Points	Sales Units	Sales Dollars
Red at break-even		$
White at break-even		$
Blue at break-even		$

2.	Assume if the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product. (Round up your composite units to whole number. Omit the "$" sign in your response.)

Break-Even Points	Sales Units	Sales Dollars
Red at break-even		$
White at break-even		$
Blue at break-even		$

Answer 1

Break even point in units	Fixed cost /(Selling price Less variable cost)
Break even sales	Fixed expenses / contribution margin ratio
Contribution	Selling price Less variable cost
Contribution margin	Contribution /Sales
Break even points in units	Old raw material	New raw material
Fixed cost	141000	152,000
Total selling price	223	223
Variable cost	153	125
Contribution	70	98
Break even point in units	2,014	1,551
in the ratio of 2:2:1
Red	806	620
White	806	620
Blue	403	311
Break even point in sales
Contribution margin	31%	44%
Sales in dollars	449,186	345,878
in the ratio of 2:2:1
Red	179,674	138,351
White	179,674	138,351
Blue	89,837	69,176