Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:
- Velcro Metal Nylon
- Normal annual sales volume 100,000 200,000 400,000
- Unit selling price $1.65 $1.50 $0.85
- Variable cost per unit $1.25 $0.70 $0.25
Total fixed expenses are $400,000 per year.
All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an effective lean production system, so there are no beginning or ending work in process or finished goods inventories.
Question: Of the total fixed costs of $400,000, $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.
What is the break-even point in units for each product and the overall profit of the company if each product is sold at the exact break-even quantity?