Handy Home sells windows and doors in the ratio of 8:2 (windows:doors). The selling price of each window is $200 and of each door is $500. The variable cost of a window is $125 and of a door is $350. Fixed costs are $900,000.
(1) Determine the selling price per composite unit.
(2) Determine the variable costs per composite unit.
(3) Determine the break-even point in composite units.
(4) Determine the number of units of each product that will be sold at the break-even point.

Instructions are listed below.

Explanation:

Giving the following information:

The proportion of windowws= 0.8

The proportion of doors= 0.2

The selling price of each window is $200 and each door is $500. The variable cost of a window is $125 and of a door is $350. Fixed costs are $900,000.

1) To determine the composite price, we need to multiply the selling price of each product for the proportion of sales. Then sum them.

weighted average selling price= (selling price* weighted sales participation)

weighted average selling price= (0.8*200) + (0.2*500)= $260

2) We need to the same with the variable cost:

weighted average variable cost= (variable cost* weighted sales participation)

weighted average variable cost= (0.8*125) + (0.2*350)= $170

3) Break-even point (units)= Total fixed costs / (weighted average selling price - weighted average variable expense)

Break-even point (units)= 900,000/ (260 - 170)

Break-even point (units)= 10,000 units

4) To determine the number of units of each product, we need to multiply the break-even point in units for the proportion of sales:

Windows= 10,000*0.8= 8,000

Doors= 10,000*0.2= 2,000

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