Question

National Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $47, white, $77, and blue, $102. The per unit variable costs to manufacture and sell these products are red, $32, white, $52, and blue, $72. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $142,000. 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 $7, white, by $17; and blue, by $7. However, the new material requires new equipment, which will increase annual fixed costs by $12,000. Required: 1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round up your composite units to whole number. Omit the "$" sign in your response.) Sales Units Sales Dollars Break-Even Points Red at break-even White at break-even Blue at break-even 2. 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 up your composite units to whole number. Omit the "S" sign in your response.) Sales Units Sales Dollars Break-Even Points Red at break-even White at break-even Blue at break-even

Answer 1

1.

	Number per composite unit	Number per composite units to break even	Units sales at the break even point	Dollar sales at the break even point
Red	5	604	3020	141940
White	4	604	2416	186032
Blue	2	604	1208	123216

Workings:

Determine the selling price per composite unit.
	Ratio	Selling price per unit	Total per composite unit
Red	5	47	235
White	4	77	308
Blue	2	102	204
			747

Determine the variable costs per composite unit.
	Ratio	Variable price per unit	Total per composite unit
Red	5	32	160
White	4	52	208
Blue	2	72	144
			512

Determine the break-even point in composite units.
Choose Numerator:	/	Choose Denominator:	=	Break even units
Fixed costs	/	Contribution per unit	=	Break even units
142000	/	235	=	604

2.

	Number per composite unit	Number per composite units to break even	Units sales at the break even point	Dollar sales at the break even point
Red	5	438	2190	102930
White	4	438	1752	134904
Blue	2	438	876	89352

Workings:

Determine the selling price per composite unit.
	Ratio	Selling price per unit	Total per composite unit
Red	5	47	235
White	4	77	308
Blue	2	102	204
			747

Determine the variable costs per composite unit.
	Ratio	Variable price per unit	Total per composite unit
Red	5	25	125
White	4	35	140
Blue	2	65	130
			395

Determine the break-even point in composite units.
Choose Numerator:	/	Choose Denominator:	=	Break even units
Fixed costs	/	Contribution per unit	=	Break even units
154000	/	352	=	438