A firm sells two different products, A and B. For each unit of B sold, the firm sells two units of A. Total fixed costs $1,260,000. Additional selling prices and cost information for both products follow:ProductSellingPrice per unitVariableCosts per unitA…….$72$40B……. 48 28Required:(a) Calculate the contribution margin per composite unit.(b) Calculate the break-even point in units of each individual product.(c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be sold?
What will be an ideal response?
(a)
| 2 units of A at ($72 - 40) contribution margin per unit………… | $64 |
| 1 unit of B at ($48 - 28) contribution margin per unit………… | 20 |
| Contribution margin of a composite unit……………………… | $84 |
| (b) Break-even point in composite units | = $1,260,000/$84 |
| ? | = 15,000 composite units |
(c) Composite units to earn $294,000 in pretax income:
($1,260,000 + $294,000)/$84 = 18,500 composite units
18,500 composite units ? 2 = 37,000 units of A
18,500 composite units ? 1 = 18,500 units of B
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