Cathy's Towels sells three items: bath towels,hand towels and washcloths in a 4:3:2 mix (a batch of 9 towels has 4 bath towels,3 hand towels and 2 washcloths).Each bath towel sells for $10 and costs $4,each hand towel sells for $5 and costs $2;and each washcloth sells for $2.50 and costs $1.The shop's annual fixed expenses are $324,000,and the tax rate is 40%.How many bath towels must the firm sell at the breakeven point?

Question

Quizplus · Accepted Answer

Using the formula for weighted average contribution margin, we determined that the contribution margin for each batch of 9 towels is $36. To find the breakeven point, we divide the total fixed expenses by the contribution margin per batch:

Breakeven point = $324,000 / $36 = 9,000 batches

Since each batch contains 4 bath towels, we can multiply the total number of batches by the fraction of towels that are bath towels:

Bath towels at breakeven = 9,000 batches x (4/9) = 4,000 batches

Finally, we can convert the number of batches of bath towels to the total number of bath towels by multiplying by 9:

Bath towels at breakeven = 4,000 batches x 9 = 36,000 bath towels

Therefore, the answer is choice B: 36,000.

Cathy's Towels Sells Three Items: Bath Towels,hand Towels and Washcloths