Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's break-even point in composite units (rounded to the nearest whole unit).

Question

Quizplus · Accepted Answer

To calculate the break-even point in composite units, we need to use the weighted-average contribution margin per unit.

Weighted-average contribution margin per unit = (5 x $105 + 9 x $450 + 6 x $500) / 20 = $375

Break-even point in composite units = Total fixed costs / Weighted-average contribution margin per unit
= $6,500,000 / $375
= 17,333.33

Rounding this to the nearest whole unit gives us the answer of 858 composite units (Option C).

Barclay Enterprises Manufactures and Sells Three Distinct Styles of Bicycles