Data regarding four different products manufactured by an organization are presented below. The manufacturer has a constrained resource - machine hours. Product A Product B Product Product D
Selling price per unit $20.00 $25.00 $23.00 $15.00
Variable cost per unit $10.00 $16.00 $11.00 $7.00
Hours to make each unit 5 hours 25 hours 2 hours 35 hours
Rank these four products in order of profitability.
1
2
3
4

Given:                         Variable Cost     Fixed Cost 
                                     per haircut          per month
base salary                                               9660
manager bonus                                          530
commission                     5.92
advertising                                                 270
rent                                                            940
barber supplies                0.30
utilities                             0.25                   180
magazines                                                  25             
Total                                6.47                11605

Revenue                         11.47

Break even point in unit = Fixed expenses per month / Contribution margin per month.

Break even point in unit = 11,605 / (11.47-6.47) = 11,605 / 5 = 2,321 haircuts

Break even point in $ = Fixed expenses / Contribution margin ratio

Break even point in $ = 11,605 / (5/11.47) = 11,605 / 0.44 = 26,375

Net Income = (Contribution Margin * # of haircuts) - Fixed expenses

Net Income = (5 * 2,380) - 11,605 = 11,900 - 11,605 = 295