Gabe Industries sells two products, Basic models and Deluxe models. Basic models sell for $41 per unit with variable costs of $15 per unit. Deluxe models sell for $45 per unit with variable costs of $45 per unit. Total fixed costs for the company are $1310.4. Gabe Industries typically sells four Basic models for every Deluxe model. What is the breakeven point in total units?

Question

Quizplus · Accepted Answer

To find the breakeven point in total units, we first calculate the weighted average contribution margin per unit. Let $x$ be the number of Deluxe models sold. Then, 4$x$ will be the number of Basic models sold. The contribution margin per unit for Basic models is $41 - 15 = 26$ dollars, and for Deluxe models, it's $45 - 45 = 0$ dollars. The total contribution margin is $26(4x) + 0(x) = 104x$. The breakeven point occurs when total contribution margin equals total fixed costs, so $104x = 1310.4$. Solving for $x$ gives $x = 12.6$. Since we cannot sell a fraction of a unit, we consider the total units sold, which includes both Basic and Deluxe models: $4x + x = 5x = 5(12.6) = 63$. Therefore, the breakeven point is 63 total units.

Gabe Industries Sells Two Products, Basic Models and Deluxe Models