Cost allocationClipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $5 and has a sales price of $9. The high-end model costs $9 and sales for $15. Fixed costs associated with this product line amount to $35,880. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the total number of clippers that must be sold to earn a $12,420 profit

Break-even point (units)= 10,500 clippers

Explanation:

Giving the following information:

The economy clipper costs $5 and has a sales price of $9.

The high-end model costs $9 and sales for $15.

Fixed costs associated with this product line amount to $35,880.

Sales participation:

Economy clippers= 0.70

High-end= 0.30

Desired profit= $12,420

To calculate the number of clippers to be sold for the company, we need to use the following formula:

Break-even point (units)= (Total fixed costs + desired profit) / Weighted average contribution margin ratio

Weighted average contribution margin ratio= (weighted average selling price - weighted average unitary variable cost)

Weighted average contribution margin ratio= (0.7*9 + 0.3*15) - (0.7*5 + 0.3*9)

Weighted average contribution margin ratio= $4.6

Break-even point (units)= (35,880 + 12,420) / 4.6

Break-even point (units)= 10,500 clippers

Units to be sold to achieve target profit = 10,500 units

Explanation:

The units to be sold to achieve target profit is determined as follows:

Units to be sold to achieve target profit

= (Fixed cost + Target Profit)/Average contribution per unit

                                           Economy                   High-end

Contribution per unit   = 9-5=$4                  15-9 = $6

Average contribution per unit= ($4× 70%) + (30%×$6) = $4.6

Units to be sold to earn a profit of $12,420

= Fixed cost + Target Profit/Average contribution per unit

=  (35,880 + 12,420)/4.6

= 10,500  units

Units to be sold to achieve target profit = 10,500 units