# Managerial Accounting: 3-45 Pure Water Products produces two types of water filters

Managerial Accounting

3-45 Multiproduct CVP and decision making

Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-filter that only purifies water meant for drinking. Revenue and cost information for each product appears below:

The unit that attaches to the faucet is sold for $80 and has variable costs of $20.

The pitcher-cum-filter sells for $90 and has variable costs of $25.

Pure Water sells two faucet models for every three pitchers sold. Fixed costs equal $945,000.

Required:

1. What is the breakeven point in unit sales and dollars for each type of filter at the current sales mix?

2. Pure Water is considering buying new production equipment. The new equipment will increase fixed cost by $181,400 per year and will decrease the variable cost of the faucet and the pitcher units by $5 and $9 respectively. Assuming the same sales mix, how many of each type of filter does Pure Water need to sell to break even?

3. Assuming the same sales mix, at what total sales level would Pure Water be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 30,000 units, should Pure Water buy the new production equipment?

3-45 Multiproduct CVP and decision making

Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-filter that only purifies water meant for drinking. Revenue and cost information for each product appears below:

The unit that attaches to the faucet is sold for $80 and has variable costs of $20.

The pitcher-cum-filter sells for $90 and has variable costs of $25.

Pure Water sells two faucet models for every three pitchers sold. Fixed costs equal $945,000.

Required:

1. What is the breakeven point in unit sales and dollars for each type of filter at the current sales mix?

2. Pure Water is considering buying new production equipment. The new equipment will increase fixed cost by $181,400 per year and will decrease the variable cost of the faucet and the pitcher units by $5 and $9 respectively. Assuming the same sales mix, how many of each type of filter does Pure Water need to sell to break even?

3. Assuming the same sales mix, at what total sales level would Pure Water be indifferent between using the old equipment and buying the new production equipment? If total sales are expected to be 30,000 units, should Pure Water buy the new production equipment?

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