Crown Co.can produce two types of lamps,the Enlightner and Foglighter.The data on the two lamp models are as follows:
It takes one machine hour to produce each product.Total fixed costs for the manufacture of both products are $90,000.Demand is high enough for either product to keep the plant operating at maximum capacity.
Assuming that sales mix remains constant in units,the breakeven point in total units is (round intermediate calculations to 3 decimal places and final answer to the nearest whole number):

Question

Crown Co.can produce two types of lamps,the Enlightner and Foglighter.The data on the two lamp models are as follows: 
It takes one machine hour to produce each product.Total fixed costs for the manufacture of both products are $90,000.Demand is high enough for either product to keep the plant operating at maximum capacity.
Assuming that sales mix remains constant in units,the breakeven point in total units is (round intermediate calculations to 3 decimal places and final answer to the nearest whole number):

Quizplus · Accepted Answer

To calculate the breakeven point, we need to find the total number of units that need to be produced and sold in order to cover the total cost (fixed and variable costs).

Let's start by calculating the variable cost per unit for each product:

Enlightner:
Direct materials cost per unit = $7.50
Direct labor cost per unit = $4.50
Variable overhead cost per unit = $3.00
Total variable cost per unit = $15.00

Foglighter:
Direct materials cost per unit = $10.00
Direct labor cost per unit = $5.00
Variable overhead cost per unit = $2.50
Total variable cost per unit = $17.50

Next, we need to calculate the contribution margin per unit for each product:

Enlightner:
Selling price per unit = $30.00
Contribution margin per unit = Selling price - Total variable cost = $30.00 - $15.00 = $15.00

Foglighter:
Selling price per unit = $40.00
Contribution margin per unit = Selling price - Total variable cost = $40.00 - $17.50 = $22.50

Now we can calculate the weighted average contribution margin per unit for both products, based on the sales mix (which we are assuming remains constant):

Weighted average contribution margin = (Contribution margin per unit x Sales mix)

Enlightner:
Weighted average contribution margin for Enlightner = $15.00 x 0.4 = $6.00

Foglighter:
Weighted average contribution margin for Foglighter = $22.50 x 0.6 = $13.50

Finally, we can use the weighted average contribution margin to calculate the breakeven point in total units:

Breakeven point = Total fixed costs / Weighted average contribution margin per unit

Breakeven point = $90,000 / ($6.00 + $13.50) = 710.5263

Rounding up to the nearest whole number, the breakeven point in total units is 710.

Therefore, the best choice is B, to produce and sell 40% of Enlightner lamps and 60% of Foglighter lamps in order to reach a breakeven point of 710 units.

Crown CoCan Produce Two Types of Lamps,the Enlightner and Foglighter