Sales Mix; Break-Even Analysis; Margin of Safety
Island Novelties, Inc., of Palau makes two products. Hawaiian Fantasy and Tahitian Joy. Present revenue cost and sales data for the two products follow:
Selling price per unitâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.$15 $100
Variable expenses per unitâ€¦â€¦â€¦â€¦â€¦â€¦â€¦ ..$9 $20
Number of unit sold annually â€¦â€¦â€¦â€¦â€¦â€¦.20,000 5,000
Fixed expense total $475,800 per year. The Republic of Palau uses the U.S. dollar as its currency.
- Assuming the sales mix given above, do the following:
- Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.
- Compute the break-even point in dollar for the company as whole and the margin of safety in both dollars and percent.
- The company has developed a new product to called Samoan Delight. Assume that the company could sell 10,000 units at $45 each. The variable expense would be $36 each. The companyâ€™s fixed expenses would not change.
- Prepare another contributions format income statement, including sales of the Samoan Delight (sales of the other two products would not change).
- Compute the companyâ€™s new break-even point in dollar and the new margin of safety in both dollars and percent.