Question
In: Accounting
Multiple-Product Breakeven Parker Pottery produces a line of vases and a line of ceramic figurines. Each...
Multiple-Product Breakeven
Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost equals $38,400. Parker's accountant has begun to assess the profitability of the two lines and has gathered the following data for last year:
| Vases | Figurines | ||
| Price | $40 | $70 | |
| Variable cost | 30 | 42 | |
| Contribution margin | $10 | $28 | |
| Number of units | 1,000 | 500 |
Required:
If required, round your final answers to nearest whole value.
1. Compute the number of vases and the number of figurines that must be sold for the company to break even.
| Break-even vases | units |
| Break-even figurines | units |
2. Parker Pottery is considering upgrading its factory to improve the quality of its products. The upgrade will add $5,280 per year to total fixed cost. If the upgrade is successful, the projected sales of vases will be 2,000, and figurine sales will increase to 1,000 units. What is the new break-even point in units for each of the products?
| Break-even vases | units |
| Break-even figurines | units |
Solutions
Expert Solution
1.
| Total sales units = 1000 + 500 | 1500 |
| % unit sales of vases = 1000/1500 | 66.67% |
| % unit sales of figurines = 500/1500 | 33.33% |
| Weighted average selling price = 40*66.67% + 70*33.33% | 50 |
| Weighted average variable cost = 30*66.67% + 42*33.33% | 34 |
| Breakeven point = Total fixed cost / ( Weighted average selling price - Weighted average variable cost ) = 38400/(50-34) | 2400 units |
| Breakeven vases ( 2400 * 66.67% ) | 1600 units |
| Breakeven figurines ( 2400 * 33.33% ) | 800 units |
2. New fixed costs = 38400 + 5280 = 43680
| Total sales units = 2000 + 1000 | 3000 |
| % unit sales of vases = 2000/3000 | 66.67% |
| % unit sales of figurines = 1000/3000 | 33.33% |
| Weighted average selling price = 40*66.67% + 70*33.33% | 50 |
| Weighted average variable cost = 30*66.67% + 42*33.33% | 34 |
| Breakeven point = Total fixed cost / ( Weighted average selling price - Weighted average variable cost ) = 43680/(50-34) | 2730 units |
| Breakeven vases ( 2730 * 66.67% ) | 1820 units |
| Breakeven figurines ( 2730 * 33.33% ) | 910 units |
ekkarill92 answered 1 year agoRelated Solutions
Multiple-Product Breakeven Parker Pottery produces a line of vases and a line of ceramic figurines. Each...
Multiple-Product Breakeven
Parker Pottery produces a line of vases and a line of ceramic
figurines. Each line uses the same equipment and labor; hence,
there are no traceable fixed costs. Common fixed cost equals
$40,000. Parker's accountant has begun to assess the profitability
of the two lines and has gathered the following data for last
year:
Vases
Figurines
Price
$40
$70
Variable cost
30
42
Contribution margin
$10
$28
Number of units
1,000
500
Required:
If required, round your final...
Multiple-Product Breakeven Parker Pottery produces a line of vases and a line of ceramic figurines. Each...
Multiple-Product Breakeven
Parker Pottery produces a line of vases and a line of ceramic
figurines. Each line uses the same equipment and labor; hence,
there are no traceable fixed costs. Common fixed cost equals
$30,000. Parker's accountant has begun to assess the profitability
of the two lines and has gathered the following data for last
year:
Vases
Figurines
Price
$40
$70
Variable cost
30
42
Contribution margin
$10
$28
Number of units
1,000
500
Required:
1. Compute the number of...
Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses...
Parker Pottery produces a line of vases and a line of ceramic
figurines. Each line uses the same equipment and labor; hence,
there are no traceable fixed costs. Common fixed cost equals
$30,000. Parker's accountant has begun to assess the profitability
of the two lines and has gathered the following data for last
year:
Vases
Figurines
Price
$40
$70
Variable cost
30
42
Contribution margin
$10
$28
Number of units
1,000
500
Required:
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Output
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MC
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3
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2
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3
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1.5
4
1.93
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1.74
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6
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1.71
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