Question

Break-Even with Multiple Products

Wagner Enterprise sells two products, large tractors and small tractors. A large tractor sells for $31,000 per unit with variable costs of $14,260 per unit. Small tractors sell for $17,000 per unit with variable costs of $8,160 per unit. Total fixed costs for the company are $1,080,000. Wagner Enterprises typically sells two large tractors for every three small tractors.

Assuming the sales mix remains constant, how many large and small tractors are sold (in units) at Wagner’s break-even point?

number of large tractors: __________

number of small tractors: ___________

Answer 1

Answer

Number of large tractors	36
Number of small tractors	54

Calculated as

	Large Tractor	Small Tractor
Selling price	$         31,000	$          17,000
Less: Variable Expenses	$         14,260	$            8,160
Contribution per tractor	$         16,740	$            8,840

Now suppose small tractor sold is = 3X

Then large tractor will be = 2X

So at break even point total contribution will be equal to fixed cost

So Contribution x unit for Large tractor + Contribution x units for small tractor = Fixed cost

16740 x 2X + 8840 x 3X = $1080000

$60000x = $1080000

X = $1080000/60000 =

So large tractor sold = 2 x 18 = 36

Small Tractor = 3 x 18 = 54

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