The President of Equipment Enterprises Is Considering Expanding Sales by Producing

Essay

The president of Equipment Enterprises is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and, hence, will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that for every item of Large sold, 4 of Medium can be sold, and 8 of Small can be sold.
The following information has been assembled by the sales department and the production department.
$$\begin{array} { l r r r } & \text { Large } & \text { Mediurn } & \text { Small } \\\text { Sales price (per unit) } & \$ 15.00 & \$ 1 0 . 0 0 & \$ 5 . 0 0 \\\text { Material cost } & 5.00 & 4.00 & 2.00 \\\text { Direct labor } & 2.00 & 1.50 & 1.25 \\\text { Variable Overhead } & 2.00 & 1.50 & 1.25\end{array}$$
The fixed costs associated with the manufacture of these three products are $75,000 per year.
Required:
Determine the number of units of each product that would be sold at the break-even point.