Question - Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labour; hence, there are no traceable fixed costs. Common fixed costs equal $75,000. Parker's accountant has begun to assess the profitability of the two lines and has gath- ered the following data for last year: Price Variable cost Contribution margin Number of units Vases $ 100 75 $25 1,000 Figurines $175 105 $ 70 500
1. Compute the number of vases and the number of figurines that must be sold for the company to break even.
2. Parker Pottery is considering upgrading its factory to improve the quality of its products. The upgrade will add $13,150 per year to total fixed costs. If the upgrade is successful, the projected sales of vases will be 1,500, and figurine sales will increase to 1,000 units. What is the new break-even point in units for each of the products?
3. CONCEPTUAL CONNECTION Why is it better to use the contribution margin ratio in determining break-even in a multi-product company.