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McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2
McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $93; Z sells for $114. Variable costs for product A are $50; for Z $54. Fixed costs are $522,600. Compute the break-even point in composite units.
Expert Solution
Product ratio of A and Z is 5:2
Selling price of A and Z are $93 and $114 respectively
Price per composite unit = (5*93)+(2*114)
Price per composite unit = 465 + 228
Price per composite unit = $693
Variable cost of A and Z are $50 and $54 respectively
Variable cost per composite unit = (5*50)+(2*54)
= 250 + 108
= $358
Fixed cost = $522,600
Contribution margin of composite units = Selling price of composite units - Variable cost per composite units
= 693 - 358
= $335
Break even point in composite units = Fixed cost / Contribution margin per composite units
= 522,600 / 335
= 1,560 units
Break even point in composite units is at 1,560 units.
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