A firm makes and sells three standard products in a specific product mix.All three products are made using the same production facilities.The following budgeted data for the coming year is available.Total annual fixed costs $348 000
Tax rate 40%
The break-even sales units for products 1,2 and 3 are:

Question

Quizplus · Accepted Answer

To find the break-even sales units for each product, we need to use the formula:
Break-even sales units = Total fixed costs / Contribution margin per unit

Since the production facilities are the same for all three products, the contribution margin per unit for each product is the same.

Let "x" be the break-even sales units for each product.

Total fixed costs = $348,000
Contribution margin per unit = Selling price per unit - Variable cost per unit

Product 1:
Selling price per unit = $100
Variable cost per unit = $60
Contribution margin per unit = $40
x + x + x = 3x break-even sales units
Total fixed costs / Contribution margin per unit = 348,000 / 40 = 8,700
3x = 8,700
x = 2,900

Break-even sales units for Product 1 = 2,900

Product 2:
Selling price per unit = $80
Variable cost per unit = $48
Contribution margin per unit = $32
x + x + x = 3x break-even sales units
Total fixed costs / Contribution margin per unit = 348,000 / 32 = 10,875
3x = 10,875
x = 3,625

Break-even sales units for Product 2 = 3,625

Product 3:
Selling price per unit = $120
Variable cost per unit = $72
Contribution margin per unit = $48
x + x + x = 3x break-even sales units
Total fixed costs / Contribution margin per unit = 348,000 / 48 = 7,250
3x = 7,250
x = 2,417

Break-even sales units for Product 3 = 2,417

Therefore, the break-even sales units for Products 1, 2, and 3 are 2,900, 3,625, and 2,417 respectively.
The best choice is C.

A Firm Makes and Sells Three Standard Products in a Specific