Pines Inc. produces and sells two products. During the most recent month, sales
ID: 2425498 • Letter: P
Question
Pines Inc. produces and sells two products. During the most recent month, sales of Product A were $60,000 and its variable costs were $40,000. Product B456's sales were $20,000 and its variable costs were $8,000. Fixed costs were $20,000, and the company has a 25% tax rate. (20 points) Required: a. If the product mix remains constant, what is he overall break-even point in sales dollars for the company. _____________ b. If the product mix remains constant, what level of sales is required for product A and B to earn a total target profit of $12,000? Product A: 90,000 x 75% = $67,500 Product B:
*Please post solutions to this problem - it's a study question for a test - need to know how to set up. Thank you!
Explanation / Answer
Break Even Sales = Fixed cost / contribution
Break even sales = $ 20000 / $ 32000
BES = .625
B) sales to acheive the target profit
sales = fixed cost + target profit / contribution
product A = 20000 + 12000 / 20000 = 1.6 times
Product B = 20000+12000 / 12000 = 2.6 times
Particulars A B Total sales $ 60000 $ 20000 $ 80000 (-) variable cost $ 40000 $ 8000 $ 48000 Contribution margin $ 32000 (-) fixed cost $ 20000 EBIT $12000