Stella Company sells only two products, Product A and Product B.

Stella sells two units of Product A for each unit it sells of Product B. Stella faces a tax rate of 40%. Stella desires a net after-tax income of $54,000. The breakeven point in units would be ________.
A) 25,250 units of Product A and 50,500 units of Product B
B) 27,500 units of Product A and 55,000 units of product B
C) 50,500 units of Product A and 25,250 units of Product B
D) 55,000 units of Product A and 27,500 units of Product B

Question

Stella Company sells only two products, Product A and Product B.

Stella sells two units of Product A for each unit it sells of Product B. Stella faces a tax rate of 40%. Stella desires a net after-tax income of $54,000. The breakeven point in units would be ________.
A) 25,250 units of Product A and 50,500 units of Product B 
B) 27,500 units of Product A and 55,000 units of product B 
C) 50,500 units of Product A and 25,250 units of Product B 
D) 55,000 units of Product A and 27,500 units of Product B

Quizplus · Accepted Answer

Desired pre-tax net income $54,000 / (1.0 - 0.4) = $90,000
Weighted contribution margin [2 × ($50 - $20)] + [1 × ($30 - $10)] = $80
Breakeven point in composite units is ($90,000 + $2,110,000) / $80 = 27,500
27,500 composite units is (2 × 27,500) = 55,000 units of A and
(1 × 27,500) = 27,500 units of B

Stella Company Sells Only Two Products, Product a and Product