Asked by Bradley Fabretti on Jul 22, 2024
Verified
A firm sells two products. Product R sells for $20; its variable cost is $6. Product S sells for $50; its variable cost is $30. Product R accounts for 60% of the firm's sales, while S accounts for 40%. The firm's fixed costs are $4 million annually. Calculate the firm's break-even point.
Break-even Point
The level of production or volume of sales at which total revenues equal total expenses, resulting in no net profit or loss.
Variable Cost
Costs that vary directly with the level of output or production, such as materials and labor.
- Acquire knowledge on break-even analysis involving various products.
- Comprehend the principles of break-even analysis and its shortcomings.
Verified Answer
SS
shaurya sethiJul 26, 2024
Final Answer :
The contribution for product R is 70% of selling price, or 0.70; the contribution for product S is 0.40. The weighted contribution for R is .70 × .60 = .42; the weighted contribution for S is .40 × .40 = .16. The sum of the weighted contributions is 0.58. The break-even point is $4,000,000 / 0.58 = $6,896,552.
Learning Objectives
- Acquire knowledge on break-even analysis involving various products.
- Comprehend the principles of break-even analysis and its shortcomings.