Patriot Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $ 20; white, $ 35; and blue, $ 65. The per unit variable costs to manufacture and sell these products are red, $ 12; white, $ 22; and blue, $ 50. Their sales mix is reflected in a ratio of 5:4:2 (red: white: blue). Annual fixed costs shared by all three products are $ 250,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $ 6; white, by $ 12; and blue, by $ 10. However, the new material requires new equipment, which will increase annual fixed costs by $ 50,000. (Round answers to whole composite units.)
1. If the company continues to use the old material, determine its break- even point in both sales units and sales dollars of each individual product.
2. If the company uses the new material, determine its new break- even point in both sales units and sales dollars of each individual product.
3. What insight does this analysis offer management for long-term planning?