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Math Help - Please help me with this multi-product break even question. please show me the steps

  1. #1
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    Please help me with this multi-product break even question. please show me the steps

    Aulas Calientes SA distributes in the United States water pumps made in México. The company is considering changing its pricing to become more competitive after passage of CAFTA, the Central American Free Trade Agreement lowered U.S. tariff barriers for Central American products.
    The company’s cost accountant has prepared the following budget for the month of February:

    Product, Selling Price Per Unit, Variable Cost Per Unit, Unit Sales (numbers below are respectively)
    A $7.81 $4.44 23,531
    B $3.23 $1.20 28,939
    C $4.55 $3.24 34,634

    The cost accountant tells the working capital manager that total fixed operating costs will be $383,686 and the mix of products produced and sold will remain constant. Further analysis reveals that non-cash fixed operating costs (primarily depreciation expense) are $175,622.

    Calculate the number of units of total output the company must produce to breakeven on a cash basis.

    ***i came up with 98,823 but it is not correct!!! please show me the steps of how you do it...thank you
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  2. #2
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    *i came up with 98,823 but it is not correct!!!
    if you know the correct answer, please post it...makes things faster
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    i dont know the answer to it
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  4. #4
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    so how do you know your answer is wrong?

    Anyway

    Step 1 - Definitions
    I will assume that "break even on a cash basis" means covering your variable costs and the non cash fixed costs. The non cash fixed costs are 383686-175622=208064

    Step 2 - Find profit per unit (considering variable costs only)
    This is revenue per unit - variable cost per unit:
    A: 7.81 - 4.44 = 3.37
    B: 2.03
    C: 1.31

    Step 3Find the total profit for any production amount of good A.
    Im only going to consider good A because we are told that the production mix is constant. For each unit of good A, we will also sell:
    28939 / 23531 = 1.22982 of Good B
    34634 / 23531 = 1.47185 of Good C


    Now, cash profit = (profit per unit)*(unit sales) - fixed cost
    =3.37A + 2.03B + 1.31C - 208064
    =3.37A + 2.03*1.22982A + 1.31*1.47185A - 208064


    You want the case where cash profit =0. Solve for A

    Then use the relationship you found between A, B, C to get the total number of each unit produced
    Last edited by SpringFan25; June 27th 2010 at 09:04 AM.
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    thank you
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