Christine Enterprises sells two products, larges and smalls. Larges sell for $120 per unit with variable costs of $80 per unit. Smalls sell for $30 per unit with variable costs of $10 per unit. Total fixed costs for the company are $40,000. Christine Enterprises typically sells three larges for every two smalls. What is the breakeven point in total units?

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10-11-2019
Business

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Christine Enterprises sells two products, larges and smalls. Larges sell for $120 per unit with variable costs of $80 per unit. Smalls sell for $30 per unit with variable costs of $10 per unit. Total fixed costs for the company are $40,000. Christine Enterprises typically sells three larges for every two smalls. What is the breakeven point in total units?

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hoangkhangpham94 hoangkhangpham94 · Answer 1 · 2019-11-10T08:46:44+01:00

Answer:

The breakeven point in total units is 1,250 consisting of 750 Larges and 500 Smalls

Explanation:

Denote A is the break-even point in unit for Larges;

As every three sales of Larges will follow with two sales Smalls, 2xA/3 will be the break-even point in unit for Smalls.

Margin per unit for Larges = $120 - $80 =$40

Margin per unit for Smalls = $30 - $10 =$20

The breakeven point in total units is the point where the total sales of Larges and Smalls will create a break-even for the Enterpises which means the margin generating will be enough for/equal to fixed cost covering.

From that, We have the formular:

Fixed cost = ( Margin per unit for Larges x Unit of Larges sold at breakeven + Margin per unit for Smalls x Unit of Smalls sold at breakeven) <=> 40,000 = 40 x A + 20 x 2 x A/3 <=> 40,000 = 160 x A/ 3 <=> A = 40,000 x 3 / 160 = 750;

=> Break even point in unit for Larges is 750, Break even point in unit for Smalls is 2x750/3 = 500

=> Total breakeven point in units = 750 + 500 = 1,250.