Specialty Cakes Inc. produces two types of cakes, a 2-pound round cake and a 3-pound heart-shaped cake. Total fixed costs for the firm are $94,000. Variable costs and sales data for the two types of cakes are presented below.
If the product sales mix were to change to three heart-shaped cakes for each round cake, the breakeven volume for each of these products would be:
A) 8,174 round cakes, 12,261 heart-shaped cakes.
B) 12,261 round cakes, 8,174 heart-shaped cakes.
C) 4,947 round cakes, 14,842 heart-shaped cakes.
D) 15,326 round cakes, 8,109 heart-shaped cakes.

Question

Specialty Cakes Inc. produces two types of cakes, a 2-pound round cake and a 3-pound heart-shaped cake. Total fixed costs for the firm are $94,000. Variable costs and sales data for the two types of cakes are presented below.
 If the product sales mix were to change to three heart-shaped cakes for each round cake, the breakeven volume for each of these products would be:
A) 8,174 round cakes, 12,261 heart-shaped cakes. 
B) 12,261 round cakes, 8,174 heart-shaped cakes. 
C) 4,947 round cakes, 14,842 heart-shaped cakes. 
D) 15,326 round cakes, 8,109 heart-shaped cakes.

Quizplus · Accepted Answer

Specialty Cakes will break even by producing 4,947 round cakes and 14,842 heart-shaped cakes as shown below.
Breakeven: (.25 x $4A) + (.75 x $5A) = $94,000
$4.75A = $94,000
A = 19,789 units
Round cakes: .25 x 19,789 = 4,947
Heart-shaped cakes: .75 x 19,789 = 14,842