Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products
The number of machine hours to produce one unit of Brighter is 1, while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $265,200.
1. Determine the breakeven point in total units for Smith Company, based on the assumption that the sales mix (on the basis of relative sales volume in units) stays constant. Use the weighted-average contribution margin approach. Round the number of units up to the next whole number.
2. At this breakeven level, how many units of each product must be sold? Be sure to round up to the next whole number.
3. What is the overall breakeven point in sales dollars? (Use both an indirect approach, based on your answer to requirement 2, and a direct approach, based on the weighted-average contribution margin ratio and the assumption that sales mix based on relative sales dollars stays constant.)
4. Of what potential managerial value is the information related to machine-hour consumption of the two products?Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer: