Garden Duty produces shovels and rakes. Sales and costs for the most recent year are indicated below: $\begin{array}{lrrr}&\text { Shovels } &\text { Rakes }& \text { Total }\
\hline\text { Units } & 8,000 & 20,000 & 28,000 \
\text { Sales revenue } & \$ 160,000 & \$ 40,000 & \$ 200,000 \
\text { Variable costs } & 98,000 & 18,000 & 116,000 \
\text { Fixed costs } & 28,000 & 12,000 & 40,000 \
\hline \text { Profit }&\$34,000&\$10,000&\$44,000
\end{array}$ The number of units and selling price per unit of both products appears to be stable for the foreseeable future. How much total revenue will Garden Duty have at break-even?

Question

Quizplus · Accepted Answer

To find the break-even revenue, calculate the break-even point in units using the formula: Fixed Costs / Contribution Margin per Unit. Contribution Margin per Unit = (Sales Revenue - Variable Costs) / Units. For Shovels: ($160,000 - $98,000) / 8,000 = $7.75. For Rakes: ($40,000 - $18,000) / 20,000 = $1.10. Weighted Average Contribution Margin = (8,000 * $7.75 + 20,000 * $1.10) / 28,000 = $3.14. Total Fixed Costs = $40,000. Break-even units = $40,000 / $3.14 = 12,738 units. Break-even revenue = 12,738 units * ($200,000 / 28,000 units) = $95,238.

Garden Duty Produces Shovels and Rakes The Number of Units and Selling Price Per Unit of the Most