[krissjm]

Question:

Taylor, Inc. produces only two products, Acdom and Belnom. These account for 60% and 40% of the total sales dollars of Taylor, respectively. The unit variable expense as a percentage of the selling price is 60% for Acdom and 85% for Belnom. Total fixed expenses are $150,000 There are no other costs.

What is Taylor's break-even point in sales dollars?
1) $150,000
2) $214,286
3) $300,000
4) $500,000

I figured in order to get the break even point, I have to have the CM equal to the fixed exp. Which is 150,000. So it will be:

Sales - Variable exp. = $150,000

I also know that when sales goes up, the variable costs will go up as well. How should I solve this problem? Unlike any other questions I've seen, this one doen't tell you the sales amount nor the unit price. Please help~!

Thank you.

[morgaine300]

Wow, this had me stumped and I know how to do this stuff. I'm having a hard time figuring out how to give you some hints without actually doing your problem for you.

Let's start with this:
100% Sales
60% variable
=40% CM

The total of your variable costs and CM have to add up to 100%. Only now you're splitting it down between two products. Notice the 60% for A and the 40% for B do add up to 100% of your sales. So the trick here is to figure out how does that split up between variable and CM between the two products. You don't need dollar amounts. You only need the percentages.

Your total variable and your total CM have to still add up to 100% -- you just need to find a way to split it out to the two products first. Don't know if this is going to make sense, but try it and see what you can do. You can take percentages of percentages. i.e. you can take 60% variable of 60% sales. Remember the 60% variable is like verticle. The number you get won't be a percent of 100% -- it'll be the portion of the 60% that is variable. And whatever's left over from that will be your CM for that product. Then do it again with product B. Variable is 85% of 40%. The left overs are CM.

If you got that far, how much in total (both jobs) do you have (as a percent) for the variable and for the CM? If you can get it back to that, you'll have what percent that 150,000 is, and then it's a matter of math to get back to the total sales.

[krissjm]

I got $500,000 as anwer... is this correct?

[morgaine300]

Yup, sure is. :-)