Question
In: Accounting
5. Gatewood Hills Corporation has three products X, Y, and Z. The company’s fixed costs are...
5. Gatewood Hills Corporation has three products X, Y, and Z. The company’s fixed costs are $69,000. The sales mix for its products are 3 units of X, 4 units of Y, and 1 unit of Z. Information about the three products follows:
|
X |
Y |
Z |
|
|
Projected sales in dollars |
$192,000 |
$192,000 |
$64,000 |
|
Selling price per unit |
$40 |
$30 |
$40 |
|
Contribution margin ratio |
30% |
35% |
35% |
Calculate the company's break-even point in composite units and sales dollars. (Hint: You will need to calculate the selling price of a composite unit and CM of a composite unit to calculate the break-even point in composite units. (2 points)
(b) Calculate the number of units of each individual product to be sold at the break-even point. (Check: At break-even point you should have 2,250 units of product X.
Solutions
Expert Solution
| Calculation of company's break even point: | ||||||||
| Contribution margin of a composite unit= (40*0.30*3/8)+(30*0.35*4/8)+(40*0.35*1/8) | ||||||||
| =4.5+5.25+1.75=$11.5 | ||||||||
| Selling price of a composite unit= (40*3/8)+(30*4/8)+(40*1/8)=15+15+5=$35 | ||||||||
| Break even point (in units)=Fixed cost/contribution margin | ||||||||
| =69000/11.5= 6000 units | ||||||||
| Break even point in units=6000 units | ||||||||
| Break even point in sales dollar= 6000*35=$210000 | ||||||||
| Break even point in sales dollar=$210000 | ||||||||
| (b) Calculation of number of unit of each product to break even: | ||||||||
| Units of X= 6000*3/8=2250 units | ||||||||
| Units of Y= 6000*4/8= 3000 units | ||||||||
| Units of Z= 6000*1/8= 750 units | ||||||||
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