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Homework answers / question archive / Wagner Enterprise sells two products, large tractors and small tractors
Wagner Enterprise sells two products, large tractors and small tractors. A large tractor sells for $62,000 per unit with variable costs of $28,520 per unit. Small tractors sell for $34,000 per unit with variable costs of $16,320 per unit. Total fixed costs for the company are $1,560,000. Wagner Enterprises typically sells two large tractors for every three small tractors. Assuming the sales mix remains constant, how many large and small tractors are sold (in units) at Wagner's break-even point?
| Computation of Weighted Average Contribution Margin: | ||||
| Large Tractor | Small tractor | Total | ||
| A | Price | 62000 | 34000 | |
| B | Variable Cost per unit | 28520 | 16320 | |
| C = A - B | Contribution Margin | 33480 | 17680 | |
| D | Product Mix (2/5; 3/5) | 40.00% | 60.00% | 100.00% |
| E = C * D | Weighted Average Contribution Margin | 13392 | 10608 | 24000 |
| Computation of Number of Large and Small Tractors Sold at Wagner's Break-even Point: | ||
| A | Total Fixed Cost plus profit | 1560000 |
| B | Weighted Average Contribution Margin | 24000 |
| C = A/B | Multi Product Break Even point | 65 |
| C * 40% | Large Tractor | 26 |
| C * 60% | Small tractor | 39 |
