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 Z Baines must sell to break even.

Question

Quizplus · Accepted Answer

Let's call the number of units of Product A sold "4x" and the number of units of Product Z sold "2x" (since they are in a 4:2 ratio).
The revenue equation would be:
Revenue = ($75 x 4x) + ($95 x 2x) = $300x + $190x = $490x
The total variable cost equation would be:
Total Variable Costs = ($35 x 4x) + ($40 x 2x) = $220x
The contribution margin equation would be:
Contribution Margin = Revenue - Total Variable Costs = $490x - $220x = $270x
To break even, the company would need to earn enough revenue to cover its fixed costs of $418,500, so we can set up the equation:
$270x = $418,500
x = 1,550
Since we know that we need to sell 2x units of Product Z to break even, the answer would be:
2x = 2(1,550) = 3,100
Therefore, Baines must sell 3,100 units of Product Z to break even.

Baines Brothers Manufactures and Sells Two Products, a and Z