Business Solutions sells upscale modular desk units and office chairs in the rat
ID: 2358112 • Letter: B
Question
Business Solutions sells upscale modular desk units and office chairs in the ratio of 3:2 (desk unit:chair). The selling prices are $1,200 per desk unit and $450 per chair. The variable costs are $700 per desk unit and $200 per chair. Fixed costs are $270,000.
Compute the selling price per composite unit.
Compute the variable costs per composite unit.
Compute the break-even point in composite units.
Compute the number of units of each product (desk units and office chairs) that would be sold at the break-even point.
Business Solutions sells upscale modular desk units and office chairs in the ratio of 3:2 (desk unit:chair). The selling prices are $1,200 per desk unit and $450 per chair. The variable costs are $700 per desk unit and $200 per chair. Fixed costs are $270,000.
Explanation / Answer
Desired return on capital = $400000 x 25% Desired return on capital = $100000 Sales = 40000 units x $15 + $150000 + $100000 Sales = $850000 Selling price per unit = $850000 / 40000 units Selling price per unit = $21.25 Contribution Margin Ratio Selling Price $21.25 (100%) Less:Variable Cost $15 (70.59%) Contribution Margin $6.25 (29.41%) Break - Even = $150000 / $6.25 = 24000 units or Break - Even = $150000 / 29.41% = $510000 Meaning: You have to sell at least 24000 units or $510000 to at least equal your expenses incurred. Actual profit = $100000 (desired return on capital) or Actual profit = $850000 - 40000 units x $15 - $150000 = $100000
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