Question

3.

Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows:

Product	Sales Price per Unit	Variable Cost per Unit
AA	$55	$25
BB	45	20
CC	30	5

Their sales mix is reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $275,000 per year.

A. What are total variable costs for Morris with their current product mix?

Total variable costs $

B. Calculate the number of units of each product that will need to be sold in order for Morris to break even.

	Number of Units per Product
AA
BB
CC

C. What is their break-even point in sales dollars?

Break-even point in sales $

D. Using an income statement format, prove that this is the break-even point. If an amount is zero, enter "0".

Income Statement
Sales
Product AA	$
Product BB
Product CC
Total Sales	$
Variable Costs
Product AA	$
Product BB
Product CC
Total Variable Costs	$
Contribution Margin	$
Fixed Costs
Net Income	$

Answer 1

		Product	Sales Price	Variable Cost
			per Unit	per Unit	Contribution margin	Mix	Weighted Contribution
		AA	$55	$25	$30	5	$15.00
		BB	45	20	$25	3	$7.50
		CC	30	5	$25	2	$5.00
						10	$27.50
	A.	Total variable costs		$19.50	(25*5/10+20*3/10+5*2/10)
	B.	Breakeven in number of units
		Weighted contribution per unit =			$27.50
		Breakeven	10,000
		AA	5000	Units
		BB	3000	Units
		CC	2000	Units
	C.	Breakeven in sales dollar
		AA	$275,000	(5000*55)
		BB	$135,000	(3000*45)
		CC	$60,000	(2000*30)
	D.
		Income statement
		Sales
		Product AA	$275,000
		Product BB	$135,000
		Product CC	$60,000
		Total sales	$470,000
		Variable costs
		Product AA	$125,000
		Product BB	$60,000
		Product CC	$10,000
		Total VC	$195,000
		Contribution margin	$275,000
		Fixed costs	275000
		Net income	$0