Question

Kitchenware, Inc., sells two types of water pitchers, plastic and glass. Plastic pitchers cost the company $15 and are sold for $30. Glass pitchers cost $24 and are sold for $45. All other costs are fixed at $982,800 per year. Current sales plans call for 14,000 plastic pitchers and 42,000 glass pitchers to be sold in the coming year.

a. How many pitchers of each type must be sold to break even in the coming year?

b. Kitchenware, Inc., has just received a sales catalog from a new supplier that is offering plastic pitchers for $13. What would be the new breakeven point if managers switched to the new supplier?

Answer 1

(a)

Calculation of Contribution per unit of plastic pitchers and glass pitchers

Particulars	Plastic	Glass
Selling Price per unit	30	45
Variable Cost per unit	15	24
Contribution per unit	15	21

Now, in order to break even, the contribution must cover the fixed costs.

Therefore, Break even point (units) = Fixed Costs / Contribution per unit

For Plastic Pitchers, the break even point = $982,800/ $15 = 65,520 units

Hence, 65,520 units of Plastic Pitchers alone will required to be sold in order to break-even.

For Glass Pitchers, the break even point = $982,800/ $21 = 46,800 units

Hence, 46,800 units of Glass Pitchers alone will required to be sold in order to break-even.

(b)

If managers switch to new supplier, the revised contribution per unit of Plastic Pitcher would be $17 (i.e., 30 - 13).

Therefore, the revised break even point = $982,800 / $17 = 57,812 units.

Hence, 57,812 units of Plastic Pitchers alone will required to be sold in order to break-even, if it is purchased from new supplier.