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Martin, Inc
Martin, Inc., which has fixed costs of $2,150,000, sells three products whose sales price, variable cost per unit, and percentage of sales units are presented in the table below.
Product A Product B Product C
Sales price P7.00 P12.00 P25.00
Variable cost P3.00 P10.00 P12.00
Sales mix 60% 30% 10%
Required:
1. What is the weighted average unit contribution margin?
2. At the break-even point, how many units of Product A must be sold?
3. To make a profit of $1,075,000, how many units of Product B must be sold?
Expert Solution
| 1) Computation of Weighted Average Unit Contribution Margin: | |||
| Product A | Product B | Product C | |
| Sales Price (a) | 7 | 12 | 25 |
| Less: Variable Costs (b) | 3 | 10 | 12 |
| Contribution Margin (c = a-b) | 4 | 2 | 13 |
| Sales Mix (d) | 60% | 30% | 10% |
| Weighted Average Contribution Margin (c*d) | 2.4 | 0.6 | 1.3 |
| Total Weighted Average Contribution Margin | 4.3 | ||
2) Computation of Breakeven Point:
Breakeven Point = Fixed Cost / Weighted Average Contribution Margin per Unit
= $2,150,000/$4.3
Breakeven Point = 500,000 units
Sale of Product A = 500,000*60% = 300,000 units
3) Computation of Required Sales of Product B to make a profit of $1,075,000:
Required Sales = (Fixed Cost+Target Profit)/Weighted Average Contribution Margin per Unit
= ($2,150,000+$1,075,000)/$4.3
= 750,000 Units
Sales of Product B = 750,000*30% = 225,000 units.
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