Graham Corp.sells two products.Product A sells for $200 per unit,and has unit variable costs of $150.Product B sells for $50 per unit,and has unit variable costs of $20.Currently,Graham sells three units of Product B for every two units of Product A sold.Graham has fixed costs of $760,000.How many units would Graham have to sell to earn a profit of $57,000?
A)21,500 units of A and 21,500 units of B
B)12,900 units of A and 8,600 units of B
C)8,600 units of A and 12,900 units of B
D)10,750 units of A and 10,750 units of B

Question

Quizplus · Accepted Answer

First, calculate the contribution margin per unit for each product: A: $200 - $150 = $50, B: $50 - $20 = $30. Given the sales mix (3B:2A), for every 5 units sold, the total contribution margin is (2*$50) + (3*$30) = $190. To cover $760,000 in fixed costs and earn $57,000 in profit, Graham needs a total contribution margin of $817,000. Dividing this by the contribution margin per 5 units ($190) gives the total sets of 5 units needed: $817,000 / $190 = 4,300 sets. Since each set consists of 2 units of A and 3 units of B, Graham needs to sell 8,600 units of A (2*4,300) and 12,900 units of B (3*4,300).