EZ Carry Corp. is the maker of high quality golf bags. They currently have three different lines of bags, which they sell to sporting goods and golf shops throughout the world. EZ Carry sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,562. (Note: round all decimals to three decimal places.) The breakeven point in units (for the year) would be:

Question

EZ Carry Corp. is the maker of high quality golf bags. They currently have three different lines of bags, which they sell to sporting goods and golf shops throughout the world. EZ Carry sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,562. (Note: round all decimals to three decimal places.)  The breakeven point in units (for the year) would be:

Quizplus · Accepted Answer

To calculate the breakeven point in units, we need to use the following formula:

Breakeven Point = Fixed Costs / Contribution Margin per Unit

First, we need to calculate the contribution margin per unit for each bag size:

Small Bag: Selling Price - Variable Cost = $120 - $60 = $60
Medium Bag: Selling Price - Variable Cost = $150 - $75 = $75
Large Bag: Selling Price - Variable Cost = $180 - $90 = $90

Next, we need to calculate the sales mix ratio. Based on the information provided, EZ Carry sells a constant mix of 4 small bags for each medium bag and 5 medium bags for each large bag. This means the sales mix ratio is:

Small : Medium : Large = 4 : 1 : 5

Using this ratio, we can calculate the weighted contribution margin per unit:

Weighted Contribution Margin per Unit = (4/10 x $60) + (1/10 x $75) + (5/10 x $90) = $74

Finally, we can calculate the breakeven point:

Breakeven Point = $2,027,562 / $74 = 27,432 units

To find out how many of each bag size EZ Carry needs to sell to reach the breakeven point, we need to apply the sales mix ratio:

Small Bags = 4/10 x 27,432 = 10,973 (rounded to nearest whole number)
Medium Bags = 1/10 x 27,432 = 2,743 (rounded to nearest whole number)
Large Bags = 5/10 x 27,432 = 13,716 (rounded to nearest whole number)

Therefore, the answer is B: 34,808 small, 8,700 medium, 1,740 large.