Patriot Co. manufactures and sells three products: red, white, and blue. Their u
ID: 2561619 • Letter: P
Question
Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $49; white, $79; and blue, $104. The per unit variable costs to manufacture and sell these products are red, $34; white, $54; and blue, $74. Their sales mix is reflected in a ratio of 2:2:1 (red:white:blue). Annual fixed costs shared by all three products are $144,000. 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 $14,000.
Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round composite units up to next whole number.)
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 next whole number
Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $49; white, $79; and blue, $104. The per unit variable costs to manufacture and sell these products are red, $34; white, $54; and blue, $74. Their sales mix is reflected in a ratio of 2:2:1 (red:white:blue). Annual fixed costs shared by all three products are $144,000. 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 $14,000.
Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round composite units up to next whole number.)
1. Determine its break-even point in both sales units and sales dollars of each individual product. Determine the selling price per composite unit. Ratio Selling price per unit Total per composite unit Red 2 White 2 Blue 1 Determine the variable costs per composite unit. Ratio Variable cost per unit Total per composite unit Red White Blue Determine the break-even point in composite unit. Choose Numerator: / Choose Denominator: = Break Even Units / = Break even units 0 Determine its break-even point in units and sales dollars of each individual product. Number per composite unit Number of composite units to break even. Units sales at the break-even point Dollar sales at the break-even point Red White Blue
Explanation / Answer
1. Break Even point Determine Selling price per Composite unit Ratio Selling price per unit Total per composite unit Red 2 49 98 White' 2 79 158 Blue 1 104 104 Total Selling price 360 Determine Variable cost per composite unit Ratio Variable cost per unit Total per composite unit Red 2 34 68 White' 2 54 108 Blue 1 74 74 Total Variable cost 250 Determine Break Even point in Composite unit Total Fixed Cost / Contribution per unit = Break Even units 144,000 / (360-250) = 1310 units Determine Break evenin units & $ of each individual product Number perComposite unit Number of composite unit to Break even Units Sales to Break Even $ sales to Break Even Red 2 1310 2620 128380 White 2 1310 2620 206980 Blue 1 1310 1310 136240 2. Break even point in Changed Scenario Determine Selling price per Composite unit Ratio Selling price per unit Total per composite unit Red 2 49 98 White' 2 79 158 Blue 1 104 104 Total Selling price 360 Determine Variable cost per composite unit Ratio Variable cost per unit Total per composite unit Red 2 25 50 White' 2 35 70 Blue 1 65 65 Total Variable cost 185 Determine Break Even point in Composite unit Total Fixed Cost / Contribution per unit = Break Even units (144,000+14000) / (360-185) = 903 units Determine Break evenin units & $ of each individual product Number perComposite unit Number of composite unit to Break even Units Sales to Break Even $ sales to Break Even Red 2 903 1806 88494 White 2 903 1806 142674 Blue 1 903 903 93912