A company sells two products, A and B. Fixed costs are $\text{₦}120,000$ per month. The variable cost per unit is $\text{₦}30$ for A and $\text{₦}45$ for B. The selling prices are $\text{₦}80$ for A and $\text{₦}100$ for B. Market conditions impose that at least 400 units of product A must be sold each month, while there is no upper limit on product B.

(a) Calculate the contribution margin per unit of each product.

(b) Determine the sales mix (numbers of A and B) that minimises the total number of units required to break even, subject to the constraint in (a).

(c) Using that mix, find the break‑even total output (units).

(d) If the firm wishes to earn a profit of $\text{₦}60,000$, how many units of each product must be sold under the same mix? Give the answers rounded to the nearest whole unit.

Question

A company sells two products, A and B. Fixed costs are $\text{₦}120,000$ per month. The variable cost per unit is $\text{₦}30$ for A and $\text{₦}45$ for B. The selling prices are $\text{₦}80$ for A and $\text{₦}100$ for B. Market conditions impose that at least 400 units of product A must be sold each month, while there is no upper limit on product B.

(a) Calculate the contribution margin per unit of each product.

(b) Determine the sales mix (numbers of A and B) that minimises the total number of units required to break even, subject to the constraint in (a).

(c) Using that mix, find the break‑even total output (units).

(d) If the firm wishes to earn a profit of $\text{₦}60,000$, how many units of each product must be sold under the same mix? Give the answers rounded to the nearest whole unit.

Accepted Answer

CM_A = ₦50, CM_B = ₦55; Break‑even mix: A = 400, B = 1,819 (total 2,219 units); To earn ₦60,000 profit: A = 400, B = 2,910 (total 3,310 units)

Neco Model Questions Vol1 2018 Economics Question 8

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