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costs manuf.
costs manuf.
costs
costs
(2 $70) + (3 $100)
Alternatively, weighted average contribution margin per unit = = $88
5
$1,200,000 + $208,000
Breakeven point = 16,000 units
$88
2
Faucet filter: 16,000 units = 6,400 units
5
Pitcher-cum
=
3
-filter: 16,000 units 9,600 units
5=
Breakeven point in dollars:
Faucet filter: 6,400 units
$100 per unit = $640,000
Pitcher-cum-filter: 9,600 units
$120 per unit = $1,152,000
3. Let
x
be the number of bundles for Crystal Clear Products to be indifferent between
the old and new production equipment.
Operating income using old equipment = $400
x
– $1,200,000
Operating income using new equipment = $440
x
– $1,200,000 – $208,000
At point of indifference:
$400
x
– $1,200,000 = $440
x
– $1,408,000
$440
x
– $400
x
= $1,408,000 – $1,200,000
$40
x
= $208,000
x
= $208,000 ÷ $40 = 5,200 bundles
Faucet models = 5,200 bundles
2 units per bundle = 10,400 units
Pitcher models = 5,200 bundles
3 units per bundle = 15,600 units
Total number of units 26,000 units
Let x be the number of bundles,
When total sales are less than 26,000 units (5,200 bundles), $400 $1,200,000 >x−
$440 $1,408,000, x−
so Crystal Clear Products is better off with the old equipment.
When total sales are greater than 26,000 units (5,200 bundles), $440 $1,408,000 > x−
$400 $1,200,000,x−
so Crystal Clear Products is better off buying the new equipment.
At total sales of 24,000 units (4,800 bundles), Crystal Clear Products should keep the
old production equipment.
Check
$400
4,800 – $1,200,000 = $720,000 is greater than $440
4,800 –$1,408,000 =
$704,000.
