Business Solutions sells upscale modular desk units and office chairs in the rat
ID: 2486988 • Letter: B
Question
Business Solutions sells upscale modular desk units and office chairs in the ratio of 2:1 (desk unit:chair). The selling prices are $1,180 per desk unit and $430 per chair. The variable costs are $680 per desk unit and $180 per chair. Fixed costs are $181,250.
Required:
1. Compute the selling price per composite unit. (Omit the “$” sign in your response)
Selling Price $___________
2. Compute the variable costs per composite unit. (Omit the “$” sign in your response)
Variable costs $_________________
3. Compute the break-even point in composite unites.
Break-even point = ______________ composite units
4. Compute the number of units of each product that would be sold at the break-even point
Unit sales Desk = __________ units Chairs = ________ units
Required:
Explanation / Answer
Answer:
1. A composite unit is a set of different products grouped together in proportion to their sales mix. In other words, its’ a way to categorize and group products from different business segments together to manage sales, inventory levels, and break even points.
Calculation of Selling price per composite unit will be as under:
Ratio of Sales Mix = 2 Modular desk : 1 Office Chair or 2 : 1
Ratio of Selling Price in sales Mix = 1180*2 : 430*1
Seeling Price per composite unit = 2360+430 = $2790
2. Variable Cost per composite unit
= 680*2 + 180*1 = 1360 + 180
= $ 1540
3. Break Even Point in composite unites
= Fixed Cost / (Selling price per composite unit - Variable cost per composite unit)
= 181250 / (2790 - 1540)
=145 composite unit
4. Composite number of units that will be sold at break even
Sales ratio of Desk and Chairs = 2 : 1
Number of units to be sold in Break Even :
=145*2 : 145* 1
= 290 Desk and 145 Chairs
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