Cornerstone Exercise 15-19 Break-Even Point in Units for a Multiple-Product Firm
ID: 2457386 • Letter: C
Question
Cornerstone Exercise 15-19 Break-Even Point in Units for a Multiple-Product Firm Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $75 and have variable costs of $45 each. The motorcycle helmets are priced at $220 and have variable costs of $140 each. Total fixed cost for Head-First as a whole equals $58,900 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 5,000 bicycle helmets and 2,000 motorcycle helmets Hide 1. Form a package of bicycle and motorcycle helmets based on the sales mix expected for the coming year. Any package with 5 bicycle helmets for every 2 motorcycle helmet is fine. For example, 5:2, or 10:4, or 30:12. Throughout the rest of this exercise, we will use 5:2 Product Bicycle helmet$ Motorcycle helmet Package total Price Unit Variable Cost Unit Contribution Margin Sales Mix Package Unit Contribution Margin 2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets Break-even bicycle helmets helmets Break-even motorcycle helmets helmetsExplanation / Answer
1) Product Price Variable cost per unit Unit contribution margin Sales mix Package unit contribution margin Bicycle helmet 75 45 30 5 150 Motorcycle helmet 220 140 80 2 160 Package total 310 2) Break Even units= Fixed cost/contribution margin per unit Break even Bicycle helmet 1963 58900/30 Break even Motorcycle helmet 736 58900/80 3) Contribution margin income statement Bicycle helmets Motorcycle helmet Break even Unit sales 1,963 736 Selling price per unit 75 220 Variable cost per unit 45 140 Contribution margin per unit 30 80 Total contribution 58,890 58,880 Fixed cost 58,900 58,900 Net profit (10) (20)