Nelson Co. incurs $568,000 in fixed costs while producing three products with the following characteristics: At the breakeven point, what is the dollar sales volume for Product Q?
A) $800,000
B) $360,000
C) $288,000
D) $120,000

Question

Quizplus · Accepted Answer

To find the breakeven point for Product Q, we need to determine its contribution margin per unit. The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. 
For Product Q, the selling price per unit is $80 and the variable cost per unit is $48, so the contribution margin per unit is $32 ($80 - $48 = $32). 
To cover the fixed costs of $568,000, we divide the total fixed costs by the weighted average contribution margin per unit. 
The weighted average contribution margin per unit is calculated as follows: 
(Product P contribution margin per unit x Product P sales mix) + (Product Q contribution margin per unit x Product Q sales mix) + (Product R contribution margin per unit x Product R sales mix) 
= ($16 x 0.4) + ($32 x 0.5) + ($48 x 0.1) = $23.2 
Breakeven point for Product Q = Total fixed costs ÷ Weighted average contribution margin per unit for all three products 
= $568,000 ÷ $23.2 
= $24,482.76 
To get the dollar sales volume for Product Q, we need to multiply the breakeven point for Product Q by its selling price: 
Breakeven point for Product Q x Selling price for Product Q = Dollar sales volume for Product Q 
$24,482.76 x $80 = $1,958,620.80 
Therefore, the dollar sales volume for Product Q at the breakeven point is $1,958,620.80, which is not one of the answer choices. However, the closest answer choice is B) $360,000, which is approximately 18.4% of the correct answer. This could be a typo in the question or an error in the calculation of the correct answer.

Nelson Co Incurs $568,000 in Fixed Costs While Producing Three Products