Drake, Inc., which has fixed costs of $1,400,000, sells three products whose sales price, variable cost per unit, and percentage of sales units are presented in the table below. Product AProduct BProduct CSales Price$16.00 $48.00 $103.00 Variable Cost$8.00 $30.00 $85.00 Sales Mix 40% 50% 10%a. What is the weighted average unit contribution margin?b. At the break-even point, how many units of Product A must be sold?c. To make a profit of $910,000, how many units of Product B must be sold?
What will be an ideal response?
a. $14.00 = [($16.00 - $8.00) × 40%] + [($48.00 - $30.00) × 50%] + [($103.00 - $85.00) × 10%]
b. 40,000 units of A = ($1,400,000/$14.00) × 40%
c. 82,500 units of B = [($1,400,000 + $910,000)/$14.00] × 50%
The weighted average unit contribution margin is the sum of the unit contribution margins for each product times their sales mix percentages. Total break-even units = Total fixed costs/Weighted average unit contribution margin. For each product, multiply total break-even units by the sales mix percentage. Total target units = (Total fixed costs + target profit)/Weighted average unit contribution margin. For each product, multiply total target units by the sales mix percentage.
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