Question

Exercise 5-22 CVP analysis using composite units LO P4

Handy Home sells windows and doors in the ratio of 8:2 (windows:doors). The selling price of each window is $106 and of each door is $256. The variable cost of a window is $65.50 and of a door is $178.00. Fixed costs are $624,000. (Enter your "per unit" values in two decimal places.)

(1) Determine the selling price per composite unit. Quantity Selling Price per unit Total per composite unit Windows Doors (2) Determine the variable costs per composite unit. Quantity Variable costs per unit Total per composite unit Windows Doors Contribution margin per composite unit Contribution margin (3) Determine the break-even point in composite units. Choose Numerator: / Choose Denominator: = Break Even Units / = Break even units (4) Determine the number of units of each product that will be sold at the break-even point. Quantity Number of composite units to break even. Unit sales at break-even point Windows Doors

Answer 1

1)

Calculation of selling price per composite unit.
	Quantity (A)	Selling Price per unit (B)	Total per composite unit (A*B)
Windows	8	$106.00	$848.00
Doors	2	$256.00	$512.00
Selling price per Composite unit			$1,360.00

2)

Calculation of variable costs per composite unit.
	Quantity (A)	Variable costs per unit (B)	Total per composite unit (A*B)
Windows	8	$65.50	$524.00
Doors	2	$178.00	$356.00
Variable cost per composite unit			$880.00
Contribution margin per composite unit
Sales		$1,360.00
Less: Variable costs		$880.00
Contribution margin		$480.00

3)

Calculation of break-even point in composite units.
Choose Numerator:	/	Choose Denominator:	=	Break Even Units
Total Fixed Costs	/	Contribution margin per unit	=	Break even units
$624,000	/	$480.00	=	1,300	Composite units

4)

Calculation of number of units of each product that will be sold at the break-even point.
	Quantity (A)	Number of composite units to break even. (B)	Unit sales at break-even point (A*B)
Windows	8	1,300	10,400	Windows
Doors	2	1,300	2,600	Doors
			13,000	Total