Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. Ramirez’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?

A
3,000

B
3,522

C
5,000

D
7,000

The correct answer is A.

Explanation:

Giving the following information:

The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus).

Q-Chip has variable costs per unit of $60 and a selling price of $100.

Q-Chip Plus has variable costs per unit of $70 and a selling price of $130.

Ramirez’s fixed costs are $540,000.

First, we need to calculate the break-even point in units for the whole company.

Break-even point (units)= Total fixed costs / Weighted average contribution margin ratio

Weighted average contribution margin ratio= (weighted average selling price - weighted average unitary variable cost)

weighted average selling price= (0.3*100 + 0.7*130)= $121

weighted average unitary variable cost= (0.3*60 + 0.7*70)= $67

Weighted average contribution margin ratio= 540,000 / (121 - 67)

Weighted average contribution margin ratio= 10,000 units

Break-even for each product line:

Q-Chip= 0.3*10,000= 3,000 units

Q-Chip Plus= 0.7*10,000= 7,000 units

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