Question

CASE 5-32 Break-Even Analysis for Individual Products in a Multiproduct Company LC5-5, L05-9 Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of market- ing at Piedmont Fasteners Corporation: "Wes, I'm not sure how to go about answering the ques- tions that came up at the meeting with the president yesterday.” "What's the problem?" **The president wanted to know the break-even point for each of the company's products, but I am having trouble figuring them out." “I'm sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomor- row morning at 8:00 sharp in time for the follow-up meeting at 9:00." Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below: Velcro Metal Nylon Annual sales volume... Unit selling price Variable expense per unit 100,000 $1.65 $1.25 200,000 $1.50 $0.70 400,000 $0.85 $0.25 Total fixed expenses are $400,000 per year.

Answer 1

Sol Information Given Annual Sale Volume Unit Selling Price Variable Expense Per unit Velco 1,00,000 1.65 $ 1.25$ Metal 2,00,000 1.50 $ 0.70 $ Nylon 4,00,000 0.85 $ $ 0.25 Fixed Cost $ 4,00,000.00 Step1: Sales Mix Velco Metal Nylon Total Sales Volume 1,00 2,00,000 4,00,000 7,00,000 Sales Mix (%) 14.29% 28.57% 57.14% 100% Calculation 100000/700000 200000/700000 400000/700000 Step 2: Contribution Product wise Unit Selling Price Variable Expense Contribution per unit (A) Per unit (B) (A)-(B) Velco $ 1.65$ 1.25$ 0.40 Metal $ 1.50 $ 0.70 $ 0.80 Nylon $ 0.85 $ 0.25 $ 0.60

Step 3 Calculation of Weighted Avg Contribution per equivalent unit Velco Metal Nylon Weighted Avg Contribution per Contribution Per unit (A) Sales Mix-(B) Equivalent unit (A)x(B) $ 0.40 14.29% $ 0.05716 $ 0.80 28.57% $ 0.22856 $ 0.60 57.14% $ 0.34284 Weighted Avg Contribution per Equivalent unit $ 0.62856 Step 4: Company's BEP in Sales Formulate to calculate BEP is as below BEP in Sales value = Fixed Cost Weighted Avg Contribution per Equivalent unit 400000 BEP in Sales value 0.62856 BEP in company Sales (units) 6,36,375

Step 5: Product Wise Sales Breakevn Velco Metal Nylon Sales Mix (%) 14.29% 28.57% 57.14% Break Even sales 90,938 1,81,812 3,63,625 Calculation 636375 x 14.29% 636375 x 29.57% 636375 x 57.14% There for Breakeven Point in sales product wise: Product Velco Metal Nylon Break Even sales 90,938 1,81,812 3,63,625