Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $64; white, $94; and blue, $119. The per unit variable costs to manufacture and sell these products are red, $49; white, $69; and blue, $89. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $159,000. 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 $16; and blue, by $6. However, the new material requires new equipment, which will increase annual fixed costs by $29,000. 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. 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.

1.         PATRIOT CO.

                           Red        White        Blue

Selling price      $64        $94             $119

varaible cost      $49       $69             $89

Contribution         15         29                30

ratio                      5            4                 2

  weighted average contribution =   (15*5) + ( 29*4)   +  (30*2)

                                                                5+ 4+2

                                                      =    75 + 116 +60

                                                                       11

                                                    =  251/11 =  $22.82

Weighted average contribution ratio =   (15*5) + ( 29*4)   +  (30*2)

                                                                       5*64+ 4*94+2*119

                                                           =  251/934  =  26.87%

Break-even unit =  fixed cost / weighted average contribution

                        =     $159,000/$22.82 =   6,968unit

Red =  5/11* 6,968 =    3,167

White =  4/11* 6,968 =  2,534

Blue =    2/11 * 6,968 =  1,267

Break-even in sales dollar =  fixed cost / weighted average contribution ratio

                        =     $159,000/26.87% =   $591,738

Red =  5/11* $591,738 =    $268,972

White =  4/11*  $591,738 =  $215,177

Blue =    2/11 *  $591,738  =  $107,589

2.

 Red        White        Blue

Selling price      $64        $94             $119

variable cost      $43       $53             $83

Contribution         21        45                36

ratio                      5            4                 2

  weighted average contribution =   (21*5) + ( 45*4)   +  (36*2)

                                                                5+ 4+2

                                                      =    105 + 180 +72

                                                                       11

                                                    =  357/11 =  $32.54

Weighted average contribution ratio =   (21*5) + ( 45*4)   +  (36*2)

                                                                       5*64+ 4*94+2*119

                                                           =  357/934  =  38.22%

Break-even unit =  fixed cost / weighted average contribution

                        =     $188,000/$32.45=   5,794unit

Red =  5/11* 5,794 =    2,634

White =  4/11* 5,794 =  2,107

Blue =    2/11 * 5,794 =  1,53

Break-even in sales dollar =  fixed cost / weighted average contribution ratio

                        =     $188,000/38.22% =   $491,889

Red =  5/11* $491,889 =    $223,586

White =  4/11*  $491,889 =  $178,869

Blue =    2/11 *  $491,889  =  $89,434

Explanation:

whats the

answer; offer in store wine and beer samples;