Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product A Baines must sell to break even.

Question

Quizplus · Accepted Answer

To find the break-even point, calculate the weighted average contribution margin per unit, then divide the fixed costs by this margin. The ratio of sales is 4:2, so for every 6 units sold, 4 are A and 2 are Z. Contribution margin for A is $40 ($75-$35) and for Z is $55 ($95-$40). Weighted average contribution margin = (4/6)*$40 + (2/6)*$55 = $45. Fixed costs $418,500 / $45 = 9,300 total units. Since 4/6 of these are A, 9,300 * (4/6) = 6,200 units of A.

Baines Brothers Manufactures and Sells Two Products, a and Z