Answer:
1. break even number in units = $270,000 / $12 = 22,500
product 1 units = 22,500 x 6/12 = 11,250 units
total sales = 11,250 x $40 = $450,00
0
product 2 units = 22,500 x 4/12 = 7,500 units
total sales = 7,500 x $30 = $225,000
product 3 units = 22,500 x 2/12 = 3,750 units
total sales = 3,750 x $20 = $75,000
total sales = $750,000
2. break even number in units = $320,000 / $18.67 = 17,139.8 units
product 1 units = 17,139.8 x 6/12 = 8,569.9 ≈ 8,567 units
total sales = 8,567 x $40 = $342,680
product 2 units = 17,139.8 x 4/12 = 5,713.27 ≈ 5,714 units
total sales = 5,714 x $30 = $171,420
product 3 units = 17,139.8 x 2/12 = 2,856.63 ≈ 2,857 units
total sales = 2,857 x $20 = $57,140
total sales = $571,240
c. Management should start using the new material as soon as possible since it doesn't only decrease the break even point, if sales level remain the same, it will increase operating profits.
Explanation:
product 1's contribution margin = $10
product 2's contribution margin = $15
product 3's contribution margin = $12
sales mix = 6:4:2
weighted contribution margin = ($10 x 6/12) + ($15 x 4/12) + ($12 x 2/12) = $5 + $5 + $2 = $12
new contribution margin:
product 1's contribution margin = $20
product 2's contribution margin = $20
product 3's contribution margin = $12
sales mix = 6:4:2
weighted contribution margin = ($20 x 6/12) + ($20 x 4/12) + ($12 x 2/12) = $10 + $6.67 + $2 = $18.67
