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A company sells two models of a product—basic and premium. Fixed costs are $150,000. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5 basic models to 3 premium models, then the break-even in composite units is .

Respuesta :

Shahzaibfaraz

Answer:

Break-even in composite units = 4364 units (rounded off)

Explanation:

The break-even point in composite units is used when there are two or more products. It is calculated by first calculating the individual Contribution of each unit and then calculating the weighted-average contribution per unit. Then the Total Fixed costs are divided by the weighted average contribution per unit.

Following are the calculations,

  • Contribution per unit (Basic) = 100 - 75 = 25/unit
  • Contribution per unit (Premium) = 150 - 100 = 50/unit
  • Weighted average contribution = (25 * 5/8) + (50 * 3/8) = 34.375/unit
  • Break-even in composite units = 150000 / 34.375 = 4363.636364 units rounded off to 4364 units.

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