Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are: Assuming that last year's fixed costs totaled $675,000. What was Rusty Co.'s break-even point in units?
A) 16,875 units
B) 30,100 units
C) 30,000 units
D) 11,250 units

Question

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are:  Assuming that last year's fixed costs totaled $675,000. What was Rusty Co.'s break-even point in units?
A) 16,875 units 
B) 30,100 units 
C) 30,000 units 
D) 11,250 units

Quizplus · Accepted Answer

To calculate the break-even point we need to find the total contribution margin and divide it by the total fixed costs:

Total contribution margin = (contribution margin per unit of X x units sold of X) + (contribution margin per unit of Y x units sold of Y)
 
Contribution margin per unit of X = selling price of X - variable cost per unit of X 
= $40 - $26 = $14

Contribution margin per unit of Y = selling price of Y - variable cost per unit of Y 
= $20 - $12 = $8

Total contribution margin = ($14 x 5,000) + ($8 x 35,000) 
= $70,000 + $280,000 
= $350,000

Then we divide the total fixed costs by the total contribution margin to get the break-even point:

Break-even point (in units) = Total fixed costs / Total contribution margin
= $675,000 / $350,000 
= 30,000 units

Therefore, the correct answer is C) 30,000 units.

Rusty Co Sells Two Products, X and Y