Question

Henna Co. produces and sells two products, T and O. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 60,000 units of each product. Sales and costs for each product follow. Product T Product Sales $ 1,020,000 $ 1,020,000 Variable costs 612,000 204,000 Contribution margin 408,000 816,000 Fixed costs 258,000 666,000 Income before taxes 150,000 150,000 Income taxes (35% rate) 52,500 52,500 Net income $ 97,500 $ 97,500Compute the break even point in dollar sales for each product.

Answer 1

Answer:

Break-even point in dollar sales

= Fixed cost

  Contribution margin ratio

Product T

Contribution margin ratio

= Contribution

      Sales

= $408,000

  $1,020,000

= 0.40

Break-even point in dollar sales

= $258,000

    0.4

=$645,000

Product O

Contribution margin ratio

= $816,000

  $1,020,000

= 0.80

Break-even point in dollar sales

= $666,000

       0.80

= $832,500

Explanation:

In this case, we need to calculate the contribution margin ratio of the two products, which is the ratio of contribution to sales. Then, we will determine the break-even point in dollar sales, which equals fixed cost divided by contribution margin ratio.