Question

Note two attatchments.

Mount Carmel Company sells only two products, Product A and Product B. Total Product A Product B $40 $24 $40 Selling price Variable cost per unit Total fixed costs $50 $840,000 Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%.

Answer 1

2 units of product A and 1 units of product B are sold. Total 3 units.

Contribution margin for 3 units = ($40 - $24) X 2 + ($50 - $40) = $42

Total Breakeven units = $840,000 X 3/42 = 60,000 units

a.

Product A = 60,000 X 2/3 = 40,000

Product B = 60,000 X 1/3 = 20,000

b.

Breakeven point does not change with change in tax rate.

Product A = 60,000 X 2/3 = 40,000

Product B = 60,000 X 1/3 = 20,000

c.

Profit before tax = $73,500 / 70% = $105,000

Total units to be sold = ($840,000 + $105,000) X 3/42 = 67,500 units

Product A = 67,500 X 2/3 = 45,000 units

Product B = 67,500 X 1/3 = 22,500 units