Hitch Company sells Products S and T and has made the following estimates for th
ID: 2381547 • Letter: H
Question
Hitch Company sells Products S and T and has made the following estimates for the coming year:
Product
Unit Selling Price
Unit Variable Cost
Sales Mix
S
$30
$24
60%
T
$70
$56
40%
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
Please show work and hekp me understand the solutions! :)
Product
Unit Selling Price
Unit Variable Cost
Sales Mix
S
$30
$24
60%
T
$70
$56
40%
Explanation / Answer
(a) the estimated sales in units of the overall product necessary to reach the breakeven point for the coming year.
30 - 24 = $6 Product S Contribution Margin
70 - 56 = $14 Product T Contribution Margin
[(6 x 60) + (14 x 40)] / 60 + 40 = $9.20 Weighted Average Contribution Margin
202,400 Fixed Costs / 9.20 = 22,000 Units
(b) the estimated number of units of each product necessary to be sold to reach the breakeven point for the coming year.
22,000 x 60% = 13,200 Units of Product S
22,000 x 40% = 8,800 Units of Product T
(c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
(202,400 + 119,600) / 9.20 = 35,000 Units
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