Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of LittleBlast were produced and sold. Following are average prices and costs for last month: $\begin{array}{lrr}&\text { BiqBlast }&\text { LittleBlast }\
\text { Selling price } & \$ 100 & \$ 200 \
\text { Direct materials } & (25) & (75) \
\text { Direct labour } & (15) & (35) \
\text { Variable overhead } & (5) & (30) \
\text { Product line fixed costs } & (10) & (40) \
\text { Corporate fixed costs } & (25) & (25)\
\text { Average margin per unit }&\$20&\$5
\end{array}$ The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped.
What is the breakeven sales volume (in units) for BigBlast? (In other words, what is the sales volume at which Horton should be financially indifferent between dropping and keeping BigBlast?)
A) 728 units
B) 2,545 units
C) 1,084 units
D) 790 units

Question

Quizplus · Accepted Answer

The breakeven sales volume for BigBlast is 728 units. This is calculated by dividing the product line fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable costs per unit. In this case, the contribution margin per unit for BigBlast is $100 - $25 - $15 - $5 = $55. The product line fixed costs for BigBlast are $10. Therefore, the breakeven sales volume is $10 / $55 = 728 units.

Horton and Associates Produces Two Products Named BigBlast and LittleBlast