19. Positronic Products manufactures three lines of heavy equipment for electric

Question

19. Positronic Products manufactures three lines of heavy equipment for electrical, chemical, and atomic research. Each of the three lines constitutes a third of the total sales of Positronic. The contribution margin ratio is 20 percent for the electrical line, 25 percent for the chemical line, and 55 percent for the atomic research line. Total sales have been forecast at $24,000,000 for the next year, while total fixed costs are expected to be $5,250,000.

a.Prepare a table showing (1) sales, (2) total variable
costs, and (3) the total contribution margin associated
with each product line.

b. At the given sales mix, what is the breakeven
point in dollars?

Explanation / Answer

a. Sales Total Variable cost Total Contribution Margin Electrical $           80,00,000 $       64,00,000 $            16,00,000 Chemical $           80,00,000 $       60,00,000 $            20,00,000 Atomic research $           80,00,000 $       36,00,000 $            44,00,000 Working: 1) Product Total Sales Weight of product Sales of Product a b a*b Electrical $       2,40,00,000 1/3 $            80,00,000 Chemical $       2,40,00,000 1/3 $            80,00,000 Atomic research $       2,40,00,000 1/3 $            80,00,000 2) Variable cost = Sales - Contributon Margin Product Sales Contribution Margin Ratio Contribution Margin Variable Cost a b c=a*b d=a-c Electrical $           80,00,000 20% $            16,00,000 $ 64,00,000 Chemical $           80,00,000 25% $            20,00,000 $ 60,00,000 Atomic research $           80,00,000 55% $            44,00,000 $ 36,00,000 b. Break even point in dollars $    4,72,50,000 Working: 1) Calulation of Weighted Contribution Margin Ratio: Product Contribution Margin Weight Weighted Contribution Margin Electrical $           16,00,000 1/3 $         5,33,333.33 Chemical $           20,00,000 1/3 $         6,66,666.67 Atomic research $           44,00,000 1/3 $      14,66,666.67 Total $      26,66,666.67 2) Weighted Contribution a $     26,66,666.67 Total Sales b $ 2,40,00,000.00 Weighted Contribution Margin Ratio a/b 11.11% 3) Break even point in dollars = Fixed Costs/Weighted Contribution Margin Ratio = $       52,50,000 / 11.11% = $    4,72,50,000

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