Eastwick produces and sells three products.Last month's results are as follows:
$$\begin{array} { | l | r | r | r | }
\hline & \text { P1 } & \text { P2 } & \text { P3 } \
\hline \text { Revenues } & \$ 100,000 & \$ 200,000 & \$ 200,000 \
\hline \text { Variable costs } & 40,000 & 140,000 & 80,000 \
\hline
\end{array}$$
Fixed costs total $200,000.What is Eastwick's break-even sales volume? (Assume the current product mix. )

A) $500,000.
B) $416,667.
C) $384,615.
D) $460,000.

Question

Eastwick produces and sells three products.Last month's results are as follows: 
$$\begin{array} { | l | r | r | r | } 
\hline & \text { P1 } & \text { P2 } & \text { P3 } \
\hline \text { Revenues } & \$ 100,000 & \$ 200,000 & \$ 200,000 \
\hline \text { Variable costs } & 40,000 & 140,000 & 80,000 \
\hline
\end{array}$$
Fixed costs total $200,000.What is Eastwick's break-even sales volume? (Assume the current product mix. )

A) $500,000.
B) $416,667.
C) $384,615.
D) $460,000.

Quizplus · Accepted Answer

The break-even sales volume is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin is the difference between revenues and variable costs. Total contribution margin = $240,000. Contribution margin ratio = $240,000 / $500,000 = 0.48. Break-even sales volume = $200,000 / 0.48 = $416,667.

Eastwick Produces and Sells Three Products Fixed Costs Total $200,000