The Morton Company produces and sells two products: A and B. Financial data rela

Question

The Morton Company produces and sells two products: A and B. Financial data related to producing these two products are summarized as in the table below. If these products are sold in the ratio of four A's for every three B's, what is the break-even point? If the product mix has changed to five A's to five B's, what would happen to the break-even point? In order to maximize the profit, which product mix should be pushed? If both products must go through the same manufacturing machine and there are only 30,000 machine hours available per period, which product should be pushed? Assume that product A requires 0.5 hour per unit and B requires 0.25 hour per unit. Selling price $10.00 $12.00 Variable costs $5.00 $10.00 Fixed costs $2,000 $600

Explanation / Answer

Break-even point is when selling price is equal to cost price.

a. at 4 A with 3 B- when we sell 300 B(300*12- 600-300*10= 0) and 400 A(400*10-2000-300*5=0) then it will be breakeven point.

c. Inorder to maximize profit Product B should be pushed as it reaches breakeven point earlier.

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