Mcdale Incorporated produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $39,080. The break-even point for the entire company is closest to:

Question

Mcdale Incorporated produces and sells two products. Data concerning those products for the most recent month appear below:  The fixed expenses of the entire company were $39,080. The break-even point for the entire company is closest to:

Quizplus · Accepted Answer

To find the break-even point, we need to calculate the total contribution margin:

Total Contribution Margin = (Unit Contribution Margin of Product A x Units Sold) + (Unit Contribution Margin of Product B x Units Sold)

Unit Contribution Margin = Selling Price - Variable Cost

For Product A:
Unit Contribution Margin = $25 - $13 = $12

For Product B:
Unit Contribution Margin = $40 - $24 - $4 = $12

Total Contribution Margin = ($12 x 2,500) + ($12 x 1,300) = $57,200

The break-even point can be calculated as follows:

Break-Even Point in Units = Fixed Expenses / Unit Contribution Margin
Break-Even Point in Units = $39,080 / $12
Break-Even Point in Units = 3,256.67

Since it's not possible to sell a fraction of a unit, we need to round up to 3,257 units. Therefore, the break-even point in dollars is:

Break-Even Point in Dollars = Break-Even Point in Units x Selling Price of one of the products
Break-Even Point in Dollars = 3,257 x $25
Break-Even Point in Dollars = $81,425

The closest answer is B) $79,755 (which is the result obtained by subtracting the fixed expenses from the total contribution margin: $57,200 - $39,080 = $18,120, and then dividing this amount by the weighted average contribution margin per unit: $18,120 / 0.455 = $39,755. $39,755 + $40,000 = $79,755).

Mcdale Incorporated Produces and Sells Two Products