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I met this question and I am totally confused by the way the answer is worked. The Break even point is derived at by dividing Total Contribution Margin by CM per composite unit. Answer choice D (10,500 units) was chosen as the best answer Why Total contribution margin and not Fixed cost divided by CM per composite unit? I chose B (6,000) because I used the Fixed cost formula.
Here is the question:
Wren Co. manufactures and sells two products with selling prices and variable costs as follows:A B
SELLING PRICE $18.00 $22.00
VARIABLE COSTS $12.00 $14.00WREN’S TOTAL ANNUAL FIXED COSTS ARE $38,400. WREN SELLS FOUR UNITS OF A FOR EVERY UNIT OF B. IF OPERATING INCOME LAST YEAR WAS $28,800, WHAT WAS THE NUMBER OF UNITS WREN SOLD?
A. 5,486
B. 6,000
C. 9,600
D. 10,500ANY HELP WOULD BE APPRECIATED! THANK YOU AND BE SAFE.
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