Cruces Manufacturing Inc. is making two products A and B at its plant location i

Question

Cruces Manufacturing Inc. is making two products A and B at its plant location in Las Cruces,

NM. The cost data for the two products are in the table below.

Selling price

Variable cost

Fixed cost/quarter

a. Assuming the number of product A is equal to 3 times the number of product B, determine

the breakeven in $.

b. If the company made 4,500 units of A and 1,500 units of B respectively during the last

quarter, what is the profit made?

c. Assume this quarter the company is planning on making only product A, what would be

the breakeven volume in number of units of A?

d. Assume this quarter the company is planning on making only product B and the fixed cost

has increased from $30,000 to $40,000, what would be the breakeven volume in number

of units of B?


Please show your work in details.

Selling price

Variable cost

Fixed cost/quarter

Explanation / Answer

Answer to Part a.

Break Even Point (in $) = Fixed Cost / Contribution Margin Ratio

Product A:
Contribution Margin per Unit = Selling Price – Variable Cost per Unit
Contribution Margin per Unit = $60 - $30 = $30

Product B:
Contribution Margin per Unit = Selling Price – Variable Cost per Unit
Contribution Margin per Unit = $50 - $25 = $25

Proportion of Product A: Product B = 3:1

Proportionate Contribution Margin per Unit = ($30 * ¾) + ($25 * ¼)
Proportionate Contribution Margin per Unit = $22.50 + $6.25
Proportionate Contribution Margin per Unit = $28.75

Proportionate Selling Price per Unit = ($60 * ¾) + ($50 * ¼)
Proportionate Selling Price per Unit = $45 + $12.50
Proportionate Selling Price per Unit = $57.50

Contribution Margin Ratio = 28.75 / 57.50 * 100
Contribution Margin Ratio = 50%

Break Even Point (in $) = 30,000 / 0.50
Break Even Point (in $) = $60,000 per Quarter

Answer to Part b.

Profit = Contribution Margin – Fixed Cost
Contribution Margin of Product A = 4,500 * $30 = $135,000
Contribution Margin of Product B = 1,500 * $25 = $37,500
Total Contribution Margin = $135,000 + $37,500 = $172,500

Profit = $172,500 - $30,000
Profit = $142,500

Answer to Part c.

Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
Break Even Point (in Units) = 30,000 / 30
Break Even Point (in Units) = 1,000 Units

1,000 Units of Product A must be sold to achieve Break Even Volume.

Answer to Part d.

Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
Break Even Point (in Units) = 40,000 / 25
Break Even Point (in Units) = 1,600 Units

1,600 Units of Product B must be sold to achieve Break Even Volume.

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