Patriot Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $ 20; white, $ 35; and blue, $ 65. The per unit variable costs to manufacture and sell these products are red, $ 12; white, $ 22; and blue, $ 50. Their sales mix is reflected in a ratio of 5:4:2 (red: white: blue). Annual fixed costs shared by all three products are $ 250,000. 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 $ 6; white, by $ 12; and blue, by $ 10. However, the new material requires new equipment, which will increase annual fixed costs by $ 50,000. (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?