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.

Required:

1.

Assume 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. 1. Determine its break-even point in both sales units and sales dollars of each individual product. Determine the selling price per composite unit. Ratio Selling price per unit Total per composite unit Red 5 $20.00 $100.00 White 4 35.00 140.00 Blue 2 65.00 130.00 $370.00 Determine the variable costs per composite unit. Ratio Variable cost per unit Total per composite unit Red 5 $12.00 $60.00 White 4 22.00 88.00 Blue 2 50.00 100.00 $248.00 Determine the break-even point in composite units. Choose Numerator: / Choose Denominator: = Break even units / = Break even units $15.00 = 1 composite units Determine its break-even point in units and sales dollars of each individual product. Number per composite unit Number of composite units to break even. Units sales at the break-even point Dollar sales at the break-even point Red 5 3333 White 4 Blue 2

2.

Assume if the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product. 2. Determine its break-even point in both sales units and sales dollars of each individual product. Determine the selling price per composite unit. Ratio Selling price per unit Total per composite unit Red 5 White 4 Blue 2 Determine the variable costs per composite unit. Ratio Variable cost per unit Total per composite unit Red White Blue Determine the break-even point in composite units. Choose Numerator: / Choose Denominator: = Break even units / = Break even units 0 Determine its break-even point in units and sales dollars of each individual product. Number per composite unit Number of composite units to break even. Units sales at the break-even point Dollar sales at the break-even point Red White Blue