This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
Assuming the question asks for the break-even point in units for each product, given the additional information for question 3: Step 1: Determine the sales mix ratio. The sales mix for Cotton to Linen is given as 4:2. This simplifies to a ratio of 2:1. This means for every 2 units of Cotton sold, 1 unit of Linen is sold. A composite unit consists of 2 units of Cotton and 1 unit of Linen. Step 2: Calculate the contribution margin per composite unit. The contribution for Cotton is R90 per unit, and for Linen is R110 per unit. Contribution from Cotton in one composite unit: 2 units × R 90/unit = R 180 Contribution from Linen in one composite unit: 1 unit × R 110/unit = R 110 Total contribution per composite unit: R 180 + R 110 = R 290 Step 3: Calculate the break-even point in composite units. The total annual fixed costs for question 3 are R80 000. Break-even Point (Composite Units) = Total Annual Fixed CostsContribution per Composite Unit Break-even Point (Composite Units) = R 80\,000R 290/composite unit Break-even Point (Composite Units) ≈ 275.862 composite units Since units must be whole, we round up to the next whole number to ensure all fixed costs are covered. Break-even Point (Composite Units) = 276 composite units Step 4: Calculate the break-even point in units for each product. For Cotton: Break-even Units (Cotton) = Break-even Point (Composite Units) × Cotton Ratio in Mix Break-even Units (Cotton) = 276 composite units × 2 units/composite unit Break-even Units (Cotton) = 552 units For Linen: Break-even Units (Linen) = Break-even Point (Composite Units) × Linen Ratio in Mix Break-even Units (Linen) = 276 composite units × 1 unit/composite unit Break-even Units (Linen) = 276 units The break-even point is: • Cotton: 552 units • Linen: 276 units