Exercise 4-38 Multiple-Product Breakeven
Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost equals $30,000. Parker's accountant has begun to assess the profitability of the two lines and has gath- ered the following data for last year:
|
Vases
|
Figurines
|
|
Price
|
$40
|
$70
|
|
Variable cost
|
30
|
42
|
|
Contribution margin
|
$10
|
$28
|
|
Number of units
|
1,000
|
500
|
Required:
1. Compute the number of vases and the number of figurines that must be sold for the com- pany to break even.
2. Parker Pottery is considering upgrading its factory to improve the quality of its products. The upgrade will add $5,260 per year to total fixed cost. If the upgrade is successful, the pro- jected 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?