MULTIPLE-PRODUCT BREAK EVEN Polaris Inc. manufactures two types of metal stampings for the automobile industry:

door handles and trim kits. Fixed costs equal $146,000. Each door handle sells for $12 and has variable costs of $9; each trim kit sells for $8 and has variable costs of $5.

Required:

. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits?

. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income?

. How many door handles and how many trim kits must be sold for Polaris to break even?

. Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by $35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.

Problem