1) If the selling price per unit is? $100, total fixed expenses are? $600,000, a
ID: 2516634 • Letter: 1
Question
1) If the selling price per unit is? $100, total fixed expenses are? $600,000, and the breakeven sales in dollars is? $800,000, what is the variable expense per? unit?
2)
Mama's Favorite Appliances manufactures two? products: Food Processors and Espresso Machines. The following data are? available:
Food Processors
Espresso Makers
Sales price
?$125
?$225
Variable costs
?$50
?$150
The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The? company's production capacity is? 1,200 machine hours per month.
To maximize? profits, what product and how many units should the company produce in a? month?
A.
?3,600 Espresso Machines and 0 Food Processors
B.
?2,400 Food Processors and 0 Espresso Machines
C.
300 Food Processors and 675 Espresso Machines
D.
?2,400 Food Processors and? 3,600 Espresso Machines
Food Processors
Espresso Makers
Sales price
?$125
?$225
Variable costs
?$50
?$150
Explanation / Answer
1) contribution margin ratio = fixed cost/Breakeven sales in dollars = 600000/800000 = 0.75 Contribution = (Selling price per unit)*CM ratio = $100*0.75 =$75 Therefore variable cost per unit = selling price per unit-contribution margin = 100-75 = $25 2) Particulars Food processors Espresso Makers a sale price $125 $225 b less:variable cost ($50) ($150) c contribution margin(a-b) $75 $75 d products manufactured per machine hour 2 3 e contribution margin per machine hour(c*d) $150 $225 contribution margin per machine hour is highest for Espresso Makers therefore to maximise profits the company should produce 1200hrs*3 = 3600 Espresso Makers and 0 Food processors Answer: (A) 3600 Espresso makers and 0 Food Processors
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