Unique Corporation manufactures two products; data are shown below: If Unique's monthly fixed costs average $400,000, what is its break-even point expressed in sales dollars?

Question

Quizplus · Accepted Answer

To find the break-even point in sales dollars, we need to use the formula:

Break-even point (in sales dollars) = Fixed costs / Contribution margin ratio

First, we need to calculate the contribution margin ratio for each product:

Product A: 
Contribution margin per unit = $30 - $15 - $5 = $10
Contribution margin ratio = $10 / $30 = 33.33%

Product B:
Contribution margin per unit = $40 - $20 - $5 = $15
Contribution margin ratio = $15 / $40 = 37.5%

Next, we need to determine the sales mix, which is the proportion of each product's sales to the total sales:

Sales mix for Product A = 500 / (500 + 1,500) = 25%
Sales mix for Product B = 1,500 / (500 + 1,500) = 75%

Now, we can calculate the weighted-average contribution margin ratio:

Weighted-average contribution margin ratio = (Contribution margin ratio for Product A x Sales mix for Product A) + (Contribution margin ratio for Product B x Sales mix for Product B)
= (33.33% x 25%) + (37.5% x 75%)
= 35.42%

Finally, we can plug in the numbers to find the break-even point in sales dollars:

Break-even point (in sales dollars) = $400,000 / 35.42%
= $1,126,760

Therefore, the best choice is D) $1,052,632 (rounded to the nearest dollar).

Unique Corporation Manufactures Two Products; Data Are Shown Below: If