
Concept Introduction:
Composite Units:
The composite units can be defined as the variety of units produced by a business grouped together is proportion to their sales mix. A composite contribution margin per unit is calculated using the proportion of their sales mix.
Break-even point and Composite break-even point:
The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as –
Break-even point (in Units) –
Break-even point (in Dollars) –
In composite break-even point, the composite contribution margin per unit is used to find composite break-even point.
Requirement 1
To determine:
The break-even point in both sales units and sales dollars for each individual product 1, product 2 and product 3, if the company uses the old material

Answer to Problem 7BPSB
Solution:
Product | Break-even point in | |
Sales units | Sales dollars | |
Product 1 | 11,250 units | $ 450,000 |
Product 2 | 7,500 units | $ 225,000 |
Product 3 | 3,750 units | $ 75,000 |
Explanation of Solution
The above answers can be explained as follows –
First, the composite margin per composite unit will be calculated –
Given,
Product 1 –
• Sales price per unit = $ 40
• Variable cost per unit = $ 30
• Sales mix portion = 6 out of 12 (6:4:2)
Product 2 –
• Sales price per unit = $ 30
• Variable cost per unit = $ 15
• Sales mix portion = 4 out of 12 (6:4:2)
Product 3 –
• Sales price per unit = $ 20
• Variable cost per unit = $ 8
• Sales mix portion = 2 out of 12 (6:4:2)
Total composite contribution | |||
Product 1 | Product 2 | Product 3 | |
Sales price per unit (A) | 40 | 30 | 20 |
Variable cost per unit (B) | 30 | 15 | 8 |
Contribution margin per unit (C) = (A) - (B) | 10 | 15 | 12 |
Sales mix portion (D) | 6 | 4 | 2 |
Total contribution (E) =(C) x (D) | 60 | 60 | 24 |
Total composite contribution | 144 |
Contribution margin will be calculated as –
Thus, composite contribution per unit = $ 144
Now, the break-even point in sales units will be calculated as –
• Total composite contribution per unit = $ 144
• Total Fixed cost = $ 270,000
Now, break-even point in sales units and sales dollars will be calculated as –
Product | Break-even point units (A) | Sales mix portion (B) | Total Break-even sales units (A) X (B) |
Product 1 | 1,875 | 6 | 11250 |
Product 2 | 1,875 | 4 | 7500 |
Product 3 | 1,875 | 2 | 3750 |
Product | Break-even point units (A) | Sales price per unit (B) | Total Break-even sales dollars (A) X (B) |
Product 1 | 11,250 | 40 | 450,000 |
Product 2 | 7,500 | 30 | 225,000 |
Product 3 | 3,750 | 20 | 75,000 |
Thus, the break-even point in both sales units and sales dollars for each individual product 1, product 2 and product 3, if the company uses the old material have been determined.
Requirement 2
To determine:
The break-even point in both sales units and sales dollars for each individual product 1, product 2 and product 3, if the company uses the new material

Answer to Problem 7BPSB
Solution:
Product | Break-even point in | |
Sales units | Sales dollars | |
Product 1 | 8,574 units | $ 342,960 |
Product 2 | 5,716 units | $ 171,480 |
Product 3 | 2,858 units | $ 57,160 |
Explanation of Solution
The above answers can be explained as follows –
First, the composite margin per composite unit will be calculated –
Given,
Product 1 –
• Sales price per unit = $ 40
• Variable cost per unit = $ 20 (i.e. $ 30 - $ 10)
• Sales mix portion = 6 out of 12 (6:4:2)
Product 2 –
• Sales price per unit = $ 30
• Variable cost per unit = $ 10 (i.e. $ 15 - $ 5)
• Sales mix portion = 4 out of 12 (6:4:2)
Product 3 –
• Sales price per unit = $ 20
• Variable cost per unit = $ 8
• Sales mix portion = 2 out of 12 (6:4:2)
Total composite contribution | |||
Product 1 | Product 2 | Product 3 | |
Sales price per unit (A) | 40 | 30 | 20 |
Variable cost per unit (B) | 20 | 10 | 8 |
Contribution margin per unit (C) =(A) - (B) | 20 | 20 | 12 |
Sales mix portion (D) | 6 | 4 | 2 |
Total contribution (E) =(C) x (D) | 120 | 80 | 24 |
Total composite contribution per unit | 224 |
Thus, composite contribution per unit = $ 224
Now, the break-even point in sales units will be calculated as –
• Total composite contribution per unit = $ 224
• Total Fixed cost = $ 320,000 (i.e. $ 270,000 + $ 50,000)
Now, break-even point in sales units and sales dollars will be calculated as –
Product | Break-even point units (A) | Sales mix portion (B) | Total Break-even sales units (A) X (B) |
Product 1 | 1,429 | 6 | 8,574 |
Product 2 | 1,429 | 4 | 5,716 |
Product 3 | 1,429 | 2 | 2,858 |
Product | Break-even point units (A) | Sales price per unit (B) | Total Break-even sales dollars (A) X (B) |
Product 1 | 8,574 | 40 | 342,960 |
Product 2 | 5,716 | 30 | 171,480 |
Product 3 | 2,858 | 20 | 57,160 |
Thus, the break-even point in both sales units and sales dollars for each individual product 1, product 2 and product 3, if the company uses the new material have been determined.
Requirement 3
To explain:
About this analysis that offer management for long-term planning

Answer to Problem 7BPSB
Solution:
The new material reduced the variable costs for Product 1 and Product 2, but the fixed cost increased. But the overall result was, the break-even point has reduced from 1,825 units to 1,429 units. Since, the break-even point can be reached early now, it is better to use new material rather than the old material.
Explanation of Solution
The above answer can be explained as the far the break-even point is, the more distance the business has to cover to start earning profits. If the break-even point reduced to 1,429, now it can be said that, after selling 1,429 units, the business will start earning the profits, which was after 1,825 units with the old material.
The new material reduced the variable costs for Product 1 and Product 2, but the fixed cost increased. But the overall result was, the break-even point has reduced from 1,825 units to 1,429 units. Since, the break-even point can be reached early now, it is better to use new material rather than the old material
So, it is preferable to use the new material instead of old material.
Thus, the analysis has been explained.
Want to see more full solutions like this?
Chapter 21 Solutions
Connect 2-Semester Access Card for Fundamental Accounting Principles
- Swifty Supply Co. has the following transactions related to notes receivable during the last 2 months of 2027. The company does not make entries to accrue interest except at December 31. Nov. 1 Loaned $30,000 cash to Manny Lopez on a 12 month, 10% note. Dec. 11 Sold goods to Ralph Kremer, Inc., receiving a $85,500, 90-day, 8% note. 16 Received a $87,840, 180 day. 10% note to settle an open account from Joe Fernetti. 31 Accrued interest revenue on all notes receivable. (a) Journalize the transactions for Swifty Supply Co. (Ignore entries for cost of goods sold.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. Use 360 days for cal in the order presented in the problem. List all debit entries before credit entries.) Date Account Titles and Explanation Debit Creditarrow_forwardHi expert please give me answer general accounting questionarrow_forwardHoward James started a business in 2011 in Jamaica and has been operating in the wholesale/retail industries, where he buys and sells household items to the local market. In 2012, he expanded his business operations and opened two other businesses in Trinidad and Tobago and Antigua and Barbuda, respectively. The annual sales of the respective businesses in 2015 are: Jamaica: J$3,000.00 Trinidad and Tobago: TT$251,000.00 Antigua and Barbuda: $299.00 Mr. James failed to register his business for VAT/GCT as specified by the respective Sales Tax Acts and Regulations. He stated that there is no need for his businesses to be registered because their sales are under the VAT thresholds and thus not required to be registered. a) You are to advise Mr. James if his decision not to register his businesses is justifiable. b) Search the respective VAT Acts for the 3 countries and advise Mr. James of the benefits of being a registered taxpayer; also the penalties for not registering for VAT/GCT.arrow_forward
- FILL ALL CELLS. NOTICE THE DROPDOWN OPTIONSarrow_forwardABF's metal spare parts manufacturing company uses the customised production method by attributing the GST to the products it produces with the help of predetermined attribution coefficients. The processing of metal parts is carried out in two production departments: the Cutting and Drilling department, and the Assembly department. The GIS attribution coefficients for the two departments are based on the operating hours of machines and the cost of direct work respectively. At the beginning of the year, the following budgets were implemented: Cutting and Drilling Department Assembly Department Direct Labor Costs (in euros) 1.320.000 2.000.000 G.B.E. (in euros) 4.800.000 2.400.000 Machinery Operating Hours 80.000 5.000 Direct Work Hours 27.000 12.000 Requested: To calculate the coefficient of attribution of the General Secretariat that will be used in each department. (4 units) To determine the production cost per unit for order 158 which…arrow_forwardPLEASE HELP. I HAVE PROVIDED THE DROPDOWN OPTIONSarrow_forward
- The difference between the balance in a company's cash account and its bank statement is documented in the __________ of the bank statement.arrow_forwardLarge corporations should report revenues on their income statements when the __________. Cash Is Received Revenues Are Earnedarrow_forwardPLEASE HELP WITH THIS PROBLEMarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





