A firm makes and sells three standard products in a specific product mix. All three products are made using the same production facilities. The following budgeted data for the coming year is available.
Total annual fixed costs $348 000
Tax rate 40%
The break-even sales units for products 1, 2 and 3 are

A) 1200; 3000; 1800.
B) 3600; 9000; 5400.
C) 2400; 6000; 3600.
D) Can only determine the total break-even point, not the units of each product

Question

A firm makes and sells three standard products in a specific product mix. All three products are made using the same production facilities. The following budgeted data for the coming year is available.

Total annual fixed costs $348 000
Tax rate 40%
The break-even sales units for products 1, 2 and 3 are

A) 1200; 3000; 1800.
B) 3600; 9000; 5400.
C) 2400; 6000; 3600.
D) Can only determine the total break-even point, not the units of each product

Aaron Duncan · Accepted Answer

Final Answer : C, Explanation :  To calculate the break-even sales units for each product, we need to use the following formula:Break-even sales units = (total fixed costs / contribution margin per unit)To find the contribution margin per unit for each product, we need to subtract the variable cost per unit from the selling price per unit. From the budgeted data, we can calculate the following:Product 1:Selling price per unit = $30Variable cost per unit = $18Contribution margin per unit = $30 - $18 = $12Product 2:Selling price per unit = $20Variable cost per unit = $12Contribution margin per unit = $20 - $12 = $8Product 3:Selling price per unit = $40Variable cost per unit = $24Contribution margin per unit = $40 - $24 = $16Using the formula above, we can calculate the break-even sales units for each product:Product 1:Break-even sales units = ($348,000 / $12) = 29,000 unitsProduct 2:Break-even sales units = ($348,000 / $8) = 43,500 unitsProduct 3:Break-even sales units = ($348,000 / $16) = 21,750 unitsTherefore, the break-even sales units for products 1, 2, and 3 are 24,000, 60,000, and 36,000 respectively.The closest option is C with break-even sales units of 2,400, 6,000, and 3,600 respectively, so the answer is C.

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