Milano Co. Manufactures and sells three products: product 1, product 2, and product 3. Their unit selling prices are product 1, $40; product 2, $30; product 3, $20. the per unit variable cost to manufacture and sell these products are product 1, $30; product 2, $15; and product 3, $8. their sales mix is reflected in ration of 6:4:2. Annual fixed costs shared by all three products are $ 270,000. One types of raw material has been used to manufacture products 1 and 2. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as fallows: product 1 by $10 and 2 by $5. However, the new material requires new equipmen, which will increase annual fixed costs by $50,000.

Required:

1) 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) If the company uses the new material, determine its break-even point in both sales units and sales dollars of each individual product.

Analysis Component

3) What insight does this analysis offer management for long-term planning?