Zed Company sells two kinds of mainframe computer power supplies. The company projected the following cost information for the two products: Assume that total fixed costs are $428,400. How many units of the standard supply unit would be included in the total number of units required to break-even with the projected sales mix (round your answer to the nearest whole unit)?
$$\begin{array} { | l | r | r | }
\hline & { \begin{array} { l }
\text { Standard } \
\text { Supply }
\end{array} } & { \begin{array} { l }
\text { Heavy-Duty } \
\text { Supply }
\end{array} } \
\hline \text { Unit selling price } & \$ 250 & \$ 120 \
\hline \text { Unit variable cost } & \$ 110 & \$ 50 \
\hline \begin{array} { l }
\text { Number of units produced and } \
\text { sold }
\end{array} & 7,000 & 3,000 \
\hline
\end{array}$$
A)3,600 units
B)2,520 units
C)1,080 units
D)2,040 units

Question

Zed Company sells two kinds of mainframe computer power supplies. The company projected the following cost information for the two products: Assume that total fixed costs are $428,400. How many units of the standard supply unit would be included in the total number of units required to break-even with the projected sales mix (round your answer to the nearest whole unit)?
$$\begin{array} { | l | r | r | } 
\hline &  { \begin{array} { l } 
\text { Standard } \
\text { Supply }
\end{array} } & { \begin{array} { l } 
\text { Heavy-Duty } \
\text { Supply }
\end{array} } \
\hline \text { Unit selling price } & \$ 250 & \$ 120 \
\hline \text { Unit variable cost } & \$ 110 & \$ 50 \
\hline \begin{array} { l } 
\text { Number of units produced and } \
\text { sold }
\end{array} & 7,000 & 3,000 \
\hline
\end{array}$$
A)3,600 units
B)2,520 units
C)1,080 units
D)2,040 units

Quizplus · Accepted Answer

To find the break-even point in units for the standard supply, calculate the weighted average contribution margin per unit, then divide the total fixed costs by this margin. The contribution margin per unit for the standard supply is $140 ($250 - $110), and for the heavy-duty supply is $70 ($120 - $50). The sales mix is 7:3, so the weighted average contribution margin is ($140 * 0.7) + ($70 * 0.3) = $119. The break-even point in total units is $428,400 / $119 ≈ 3,600 units. The number of standard units is 70% of 3,600, which is 2,520 units.

Zed Company Sells Two Kinds of Mainframe Computer Power Supplies