Artistic Woodcrafting Inc. cabinet shop. The offer two grades of cabinet Grade I

Question

Artistic Woodcrafting Inc. cabinet shop. The offer two grades of cabinet Grade I and Grade II
Last year $850,000 sales volume, First 6 months this year $600,000 and sales expected to be $1.6 billion for the entire year.
The average unit selling prices, unit, variable costs, and direct cost are as follows:

Grade I - Unit Price 3,400 Unit variable cost 2,686 Direct fixed cost 95,000
Grade II - Unit Price 1,600 Unit variable cost 1,323 Direct fixed cost 95,000

Common fixed cost (fixed cost not traceable to either cabinet) are $35,000
Currently for every 3 Grade I sold, 7 Grade II are sold.

1. Calculate the number of Grade 1 and Grade II cabinets expected to be sold during current year.
2. Calculate the number of Grade I and Grade II cabinets that must be sold to breakeven.

Explanation / Answer

Let number of Grade 1 and Grade II sold this year be 3x and 7x sales from Grade 1 = 3x*3,400 = $10200x sales from Grade II = 7x*1,600 = $11200x $10200x + $11200x = $1.6 billion x = 74766.355 number of Grade 1 sold = 224299.0654 number of Grade II sold = 523364.49 1. Breakeven Revenue = variable cost + fixed cost 3x*3,400 +7x*1,600 = 3x*2,686 +7x*1,323 + 95,000 + 95,000 2142x + 1939x = 190000 x = 46.557 number of Grade 1 sold = 46.557*3 = 140 number of Grade II sold =46.557*7= 326

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