Chelonia Ltd manufactures small robot toys. It plans to introduce two products, Speedie and Spunkie. It is anticipated that the product mix will be 40% Speedie and 60% Spunkie. One unit of Speedie will be sold for $100, with variable cost equals $40. For a unit of Spunkie, the selling price will be $120 and the variable cost is $70. The fixed cost for producing the two products is $108 000. What is the break even point?

Question

Quizplus · Accepted Answer

First, let's calculate the contribution margin per unit for each product:
- Speedie: $100 - $40 = $60
- Spunkie: $120 - $70 = $50

Next, we can calculate the weighted average contribution margin per unit:
(0.4 x $60) + (0.6 x $50) = $54

To calculate the break even point, we can use the formula:
Break even point (in units) = Fixed costs ÷ Weighted average contribution margin per unit

Plugging in the numbers, we get:
Break even point (in units) = $108,000 ÷ $54 = 2,000 units

Since we know the product mix is 40% Speedie and 60% Spunkie, we can calculate the number of units needed for each product:
- Speedie: 40% x 2,000 = 800 units
- Spunkie: 60% x 2,000 = 1,200 units

Therefore, the answer is B.

Chelonia Ltd Manufactures Small Robot Toys