Patriot Company manufacturers and sells three products : red,white, and blue. Th
ID: 2548441 • Letter: P
Question
Patriot Company manufacturers and sells three products : red,white, and blue. Their unit selling prices are red , $ 61,white, $91; and blue, $116. The per unit variable costs to manufacture and sell these products are red, $46; white, $66; and blue, $86. Their sales mix is reflected in a ratio of 5:4:2( red : white:blue). Annual fixed costs shared by all three products are $ 156,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows : red, by $9 ; white, by $19; and blue, by $9. However , the new material requires new equipment, which will increase annual fixed costs by $ 26,000. The question is Assume if the company uses the new material, determine its new break-even point in-both sales units and sales dollars of each individual product ( Round composite units up to the next whole number.) Patriot Company manufacturers and sells three products : red,white, and blue. Their unit selling prices are red , $ 61,white, $91; and blue, $116. The per unit variable costs to manufacture and sell these products are red, $46; white, $66; and blue, $86. Their sales mix is reflected in a ratio of 5:4:2( red : white:blue). Annual fixed costs shared by all three products are $ 156,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows : red, by $9 ; white, by $19; and blue, by $9. However , the new material requires new equipment, which will increase annual fixed costs by $ 26,000. The question is Assume if the company uses the new material, determine its new break-even point in-both sales units and sales dollars of each individual product ( Round composite units up to the next whole number.)Explanation / Answer
Answer :- calculation of current break even point :-
articulars
break even point= fixed costs/ weighted average contribution per unit
=156000/21.32=7317 units
NEW SITUATION:-
break even point in units = 182000/34=5353 units
red= 5353* 45.45%=2433*61=148413
white=5353*36.36%=1946 units*91=177086
blue = 5353*18.19%= 974 units *116=112984
particulars red white blue selling price 61 91 116 variable costs 46 66 86 contribution per unit= sales-variablecosts 15 25 30 sales mix ratio 45.45% 36.36% 18.19% weighted average contribution per unit=21.32 6.82 9.1 5.4