Question: National Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $55; white, $85; and blue, $110. The per unit variable costs to manufacture and sell these products are red, $40; white, $60; and blue, $80. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $150,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $10; white, by $20; and blue, by $10. However, the new material requires new equipment, which will increase annual fixed costs by $20,000. (Round answers to whole composite units.)
Required: 1. If the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product.
2. If the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product.
Analysis Component
3. What insight does this analysis offer management for long-term planning?