Exercise 18-18 CVP analysis using weighted-average contribution margin LO P4 Han

Question

Exercise 18-18 CVP analysis using weighted-average contribution margin LO P4 Handy Home sells windows and doors in the ratio of 8:2 (windows:doors). The selling price of each windovw is $108 and of each door is $258. The variable cost of a window is $66.50 and of a door is $179.00. Fixed costs are $529,200. (Round your contribution margin per unit answers to 2 decimal places.) (1) Determine the weighted-average contribution margin per unit. Contribution margin per unit | x | % of sales mix | Weighted unit CM Windows Doors Weighted-average contribution margin (2) Determine the break-even point in units. Choose Numerator: Choose Denominator: Break even units Break even units (3) Determine the number of units of each product that will be sold at the break-even point. Unit sales of windows at break-even point Unit sales of doors at break-even point

Explanation / Answer

Answer:- 1)-

2)-

Break Even point (units) = Fixed Cost/Weighted Average contribution per unit

                                        = $529200/$49 = 10800 units

3)-

Break Even point (units) for each product:-

Windows =10800 units * 80% = 8640 units

Door       = 10800 units *20% = 2160 units

Break Even point in $ for each product:-

Windows =10800 units * 80%*108 = $933120

Door       = 10800 units *20% *258 = $557280

Working note:-

Contribution margin per unit=Selling price per unit – Variable cost per unit

            Windows = $108 -$66.50 = $41.5 per window

             Doors       = $258-$179     = $79 per door

Weighted contribution margin per unit Particluars Contribution margin per unit % of sales mix Weighted unit CM Windows $41.5 80 $41.5*80%=$33.2 Doors $79 20 $79*20%=$15.8 Weighted contribution margin per unit $49

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