McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500.
- Compute the number of units of Product A McCoy must sell to break even.

Question

Quizplus · Accepted Answer

Let X be the number of units of A that must be sold to break even. Then the number of units of Z that must be sold to break even is 2/5 X (since the ratio of A to Z sold is 5:2).

The total revenue (TR) can be expressed as TR = 75X + 95(2/5)X = 75X + 38X = 113X.

Total variable costs (TVC) can be expressed as TVC = 35X + 40(2/5)X = 35X + 16X = 51X.

The contribution margin (CM) can be expressed as CM = TR - TVC = 62X.

To break even, CM must equal total fixed costs (TFC):

62X = $418,500

X = $418,500 / 62

X ≈ 6,750

Therefore, McCoy Brothers needs to sell 6,750 units of product A to break even.

McCoy Brothers Manufactures and Sells Two Products, a and Z