Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 4

Multiple Product CVP Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows:

The number of machine-hours to produce one unit of Brighter is 1 while the number of machine hours for each unit of Cleaner is 2. Total fixed costs for the manufacture of both products are $264,000.
Required
1. Using a spreadsheet, determine the breakeven point in total units for Smith Company, based on the assumption that the sales mix (on the basis of relative sales volume in units) stays constant. Use the weighted-average contribution margin approach.
2. At this breakeven level, how many units of each product are envisioned
3. What is the overall breakeven point in sales dollars (Use both an indirect approach, based on your answer to (2) above, and a direct approach, based on the weighted-average contribution margin ratio and the assumption that sales mix based on relative sales dollars stays constant.)
4. Of what potential managerial value is the information related to machine-hour consumption of the two products