Hitchens Inc. produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $24,010. The break-even point for the entire company is closest to:
A)$33,817
B)$10,990
C)$34,160
D)$24,010

Question

Hitchens Inc. produces and sells two products. Data concerning those products for the most recent month appear below:  The fixed expenses of the entire company were $24,010. The break-even point for the entire company is closest to:
A)$33,817 
B)$10,990 
C)$34,160 
D)$24,010

Quizplus · Accepted Answer

To find the break-even point for the entire company, we need to use the formula:

Break-even point (in dollars) = Fixed expenses ÷ Contribution margin ratio

First, we need to calculate the contribution margin ratio for each product. To do this, we need to subtract the variable expenses from the selling price:

Product A: Selling price - variable expenses = $49 - $27 = $22 contribution margin per unit

Product B: Selling price - variable expenses = $80 - $52 = $28 contribution margin per unit

Next, we need to calculate the weighted average contribution margin per unit for the entire company:

Weighted average contribution margin per unit = (Product A units sold × Product A contribution margin) + (Product B units sold × Product B contribution margin) ÷ Total units sold

= (1,500 × $22) + (1,000 × $28) ÷ 2,500

= $24.80 per unit

Now we can use this contribution margin per unit to calculate the break-even point for the entire company:

Break-even point (in dollars) = $24,010 ÷ $24.80

= 967.74 (rounded up to the nearest dollar)

Therefore, the break-even point for the entire company is $33,817. The closest answer choice is A).