Case Study 2: Costing and Break-even Analysis

1. A Jamaican Agro-processing company produces two vegetable products. The following information is available:

Product X Product Y

Selling price per unit $50 $40

Variable cost per unit $38 $24

Total fixed costs are $334,000. The Agro-processing plant plans to sell 21,000 units of Product X and 7,000 units of Product Y.

Required:

1. Compute the contribution margin for each product. (4 Marks)
2. What is the expected net income? (4 Marks)
3. Assume the sales mix is 3 units of Product X for every 1 unit of Product Y; What is the break-even point in units for each product? (5 Marks)
4. Assume the sales mix is 3 units of Product X for every 2 units of Product Y; What is the break-even point in units for each product? (5 Marks)

2. The Jamaican Agro-processing company produces three other products that are not in their vegetable line. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $120. Product C sells for $25; its variable costs are $10. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. The firm has fixed costs of $350,000 per year. Calculate the break-even point of the firm. (7 marks)