Success Systems sells upscale modular desk units and office chairs in the ratio
ID: 2420117 • Letter: S
Question
Success Systems sells upscale modular desk units and office chairs in the ratio of 4:2 (desk unit:chair). The selling prices are $1,260 per desk unit and $510 per chair. The variable costs are $760 per desk unit and $260 per chair. Fixed costs are $162,500.
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 that would be sold at the break-even point.
Success Systems sells upscale modular desk units and office chairs in the ratio of 4:2 (desk unit:chair). The selling prices are $1,260 per desk unit and $510 per chair. The variable costs are $760 per desk unit and $260 per chair. Fixed costs are $162,500.
Explanation / Answer
1.Computation of the selling price per composite unit.(Sales in the ratio of 4:2 (desk unit:chair).
=($1,260 per desk unit*4)+($510 per chair*2)
=$5040+$1020
=$6060
So selling price per composite unit is $6060.
2.Computation the variable costs per composite unit.(Sales in the ratio of 4:2 (desk unit:chair).
=($1,260 per desk unit*4)+($510 per chair*2)
=$3040+$520
=$3560
So variable costs per composite unit is $3520.
3. Computation the break-even point in composite units.
Composite Unit Contribution= Composite sales price - Composite Variable Cost
=$6060-$3560
=$2500
Break-even point in composite units = Total Fixed Cost/Composite Unit Contribution
=$162,500/$2500 per Composite Unit
=65 Compostit Unit
So, break-even point in composite units is 65.
4.Computation of the number of units of each product that would be sold at the break-even point.
Sales in the ratio of 4:2 (desk unit:chair). So for calculation we need to consider 4units of desk unit and 2 units of chair for 65 composite unit.
=Desk unit(65*4)
=260 Desk unit
Chair(65*2)
=130 Chair
260 Desk Unit and 130 Chair would be sold at the break-even point.
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