Patriot Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $20; white, $35; and blue, $65. The per unit variable costs to manufacture and sell these products are red, $12; white, $22; and blue, $50. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $250,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $6; white, by $12; and blue, by $10. However, the new material requires new equipment, which will increase annual fixed costs by $50,000.

Required:

1.

Assume 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.

1. Determine its break-even point in both sales units and sales dollars of each individual product.
Determine the selling price per composite unit.
	Ratio	Selling price per unit		Total per composite unit
Red	5	$20.00		$100.00
White	4	35.00		140.00
Blue	2	65.00		130.00
				$370.00
Determine the variable costs per composite unit.
	Ratio	Variable cost per unit		Total per composite unit
Red	5	$12.00		$60.00
White	4	22.00		88.00
Blue	2	50.00		100.00
				$248.00
Determine the break-even point in composite units.
Choose Numerator:	/	Choose Denominator:	=	Break even units
	/		=	Break even units
		$15.00	=	1	composite units
Determine its break-even point in units and sales dollars of each individual product.
	Number per composite unit	Number of composite units to break even.		Units sales at the break-even point	Dollar sales at the break-even point
Red	5	3333
White	4
Blue	2

2.

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

2. Determine its break-even point in both sales units and sales dollars of each individual product.
Determine the selling price per composite unit.
	Ratio	Selling price per unit		Total per composite unit
Red	5
White	4
Blue	2
Determine the variable costs per composite unit.
	Ratio	Variable cost per unit		Total per composite unit
Red
White
Blue
Determine the break-even point in composite units.
Choose Numerator:	/	Choose Denominator:	=	Break even units
	/		=	Break even units
				0
Determine its break-even point in units and sales dollars of each individual product.
	Number per composite unit	Number of composite units to break even.		Units sales at the break-even point	Dollar sales at the break-even point
Red
White
Blue