Waterside Company sells two products, Yellow models and Striped models. Yellow models sell for $50 per unit with variable costs of $30 per unit. Striped models sell for $60 per unit with variable costs of $25 per unit. Total fixed costs for the company are $20,000. Waterside Company typically sells one yellow model for every three striped models. What is the break-even point in total units?

Question

Quizplus · Accepted Answer

To calculate the break-even point in total units for Waterside Company, we first need to find the weighted average contribution margin per unit. Since the company sells one yellow model for every three striped models, for every four units sold, there are one yellow and three striped models. The contribution margin per unit for yellow models is $20 ($50 - $30), and for striped models, it's $35 ($60 - $25). The weighted average contribution margin per unit is calculated as follows: [(1 * $20) + (3 * $35)] / 4 = $31.25. The total fixed costs are $20,000. The break-even point in units is the total fixed costs divided by the weighted average contribution margin per unit: $20,000 / $31.25 = 640 units.

Waterside Company Sells Two Products, Yellow Models and Striped Models