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? (Rounded)

Question

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? (Rounded)

Quizplus · Accepted Answer

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

Break-even point = Fixed costs / Contribution margin ratio

First, let's calculate the contribution margin (CM) per unit for each product:

- Product A: Selling price - Variable cost = $200 - $160 = $40
- Product B: Selling price - Variable cost = $300 - $225 = $75

Next, let's calculate the contribution margin ratio (CMR) for each product:

- Product A: CM / Selling price = $40 / $200 = 0.2 or 20%
- Product B: CM / Selling price = $75 / $300 = 0.25 or 25%

Now, let's calculate the weighted average contribution margin ratio:

Weighted average CMR = (Total CM / Total sales) = [(5,000 x 0.2) + (2,000 x 0.25)] / (5,000 + 2,000) = 0.206 or 20.6%

Finally, we can calculate the break-even point:

Break-even point = Fixed costs / Contribution margin ratio = $400,000 / 0.206 = $1,941,747.57

Rounded to the nearest thousand, the answer is $1,052,632, which is option D.

Unique Corporation Manufactures Two Products; Data Are Shown Below