McCoy Brothers Break-Even Point Calculation

What is McCoy Brothers' break-even point in composite units?

Given the selling prices, variable costs, and fixed costs for Products A and Z, how many composite units does McCoy Brothers need to sell to break even?

The break-even point for McCoy Brothers is approximately 11,266 composite units.

McCoy Brothers manufactures and sells two products, A and Z, in the ratio of 5:2. Product A sells for $95, while Z sells for $118. The variable costs for Product A are $54, and for Z, they are $58. The fixed costs for McCoy Brothers amount to $513,500.

To calculate the break-even point in composite units, we first need to determine the contribution margin per composite unit. The contribution margin is the selling price minus the variable cost.

For Product A, the contribution margin per unit is $95 - $54 = $41. For Product Z, the contribution margin per unit is $118 - $58 = $60. As the products are sold in a ratio of 5:2, the total contribution margin per composite unit is calculated as: (5 * $41 + 2 * $60) / 7 = $45.57.

Next, we divide the total fixed costs ($513,500) by the contribution margin per composite unit ($45.57) to find the break-even point. The computation is $513,500 / $45.57 ≈ 11,266 units.

Therefore, McCoy Brothers needs to sell approximately 11,266 composite units of Products A and Z combined to break even and cover all fixed costs.