Hi-Tech Incorporated produces two different products with the following monthly

Question

Hi-Tech Incorporated produces two different products with the following monthly data:
                                   Cell    GPS      Total

Selling price per unit   100    400
Variable cost per unit   40      240
Expected unit sales   21,000   9,000   30,000
Sales mix                     70%     30%      100%
Fixed costs                                        1,800,000
Assume the sales mix remains the same at all levels of sales.
a Calculate the weighted average contribution margin per unit.
b How many units in total must be sold to break even?
c How many units of each product must be sold to break even?
d How many units in total must be sold to
earn a monthly profit of $180,000?
e How many units of each product must be sold to earn a monthly profit of $180,000?

Explanation / Answer

a Calculate the weighted average contribution margin per unit.

Weighted average contribution margin = (60*70%+160*30%) = 90

b How many units in total must be sold to break even?

Break even = Fixed cost/weighted average contribution margin per unit

= 1800000/90

Break even = 20000 unit

c How many units of each product must be sold to break even?

Cell = 20000*70%=14000 unit

GPS = 20000*30% = 6000 unit

d How many units in total must be sold to
earn a monthly profit of $180,000?

Required unit = Fixed cost+Profit/weighted average contribution margin per unit

= (1800000+180000)/90

Requird unit = 22000 unit

e How many units of each product must be sold to earn a monthly profit of $180,000?

Cell = 22000*70% = 15400 unit

GPS = 22000*30% = 6600 unit

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