A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra? $\begin{array} { l r r r }
& \text { Unit Sales } & \text { Variable Cost Per } \
\text { Product } & \text { Price } & \text { Unit } & \
\text { Regular } & \$ 20 & & \$ 8 \
\text { Ultra } & 24 & & 4
\end{array}$

Question

A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra? $\begin{array} { l r r r } 
& \text { Unit Sales } & \text { Variable Cost Per } \
\text { Product } & \text { Price } & \text { Unit } & \
\text { Regular } & \$ 20 & & \$ 8 \
\text { Ultra } & 24 & & 4
\end{array}$

Quizplus · Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the weighted average contribution margin per unit. The contribution margin for Regular is $12 ($20 - $8) and for Ultra is $20 ($24 - $4). The sales mix is 1 Regular to 2 Ultra, so the weighted average contribution margin is ($12 * 1/3) + ($20 * 2/3) = $17.33. The break-even point in total units is $1,612,000 / $17.33 = 93,000 units. Given the sales mix, this translates to 31,000 Regular units and 62,000 Ultra units.

A Firm Sells Two Products, Regular and Ultra A) 62,000 Regular Units and 31,000 Ultra Units