Question

Island Novelties, Inc., of Palau makes two products-Hawaiian Fantasy and Tahitian Joy. Each product's selling price, variable expense per unit and annual sales volume are as follows:Hawaiian Fantasy Tahitian JoySelling price per unit $20 $100Variable expense per unit $11 $35Number of units sold annually 27,000 5,400Fixed expenses total $456,500 per year.Required:1. Assuming the sales mix given above, do the followinga. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.b. Compute the company's break-even point in dollar sales. Also, compute its margin of safety in dollars and its margin of safety percentage.2. The company has developed a new product called Samoan Delight that sells for $75 each and that has variable expenses of $45 per unit. If the company can sell 12,600 units of Samoan Delight without incurring any additional fixed expenses.a. Prepare a revised contribution format income statement that includes Samoan Delight. Assume that sales of the other two products does not change.b. Compute the company's revised break-even point in dollar sales. Also, compute its revised margin of safety in dollars and margin of safety percentage.

Answer 1

• 1. Assuming the sales mix given above, do the followinga. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.

Hawaiian Tahitian

Fantasy Joy TOTAL

27.000 5.400 32.400 Quantity

$ 20,0 $ 100,0 $ 33,3 Price Unit

$ 540.000 $ 540.000 $ 1.080.000 Total Net Sales

-$ 11,0 -$ 35,0 -$ 15,0 Variable Cost

-$ 297.000 -$ 189.000 -$ 486.000 Variable Cost

$ 9,0 $ 65,0 $ 18,3 Unit Cont Margin

$ 243.000 $ 351.000 $ 594.000 Contributing Margin

45% 65% 55% % Contribution

$ 0 $ 0 -$ 456.500 Anual Fixed Costs

$ 9,0 $ 65,0 $ 4,2 Unit Segment Margin

$ 243.000 $ 351.001 $ 137.501 Segment Margin

• b. Compute the company's break-even point in dollar sales.

TOTAL BREAK EVEN POINT

24.900 Quantity

$ 33,3 Price Unit

$ 829.999 Total Net Sales

• Compute its margin of safety in dollars and its margin of safety percentage

MARGEN OF SAFETY

$ 250.001 Sales 23%

• Prepare a revised contribution format income statement that includes Samoan Delight

Hawaiian Fantasy Tahitian Joy Samoan Delight TOTAL

27.000 5.400 12.600 45.000 Quantity

$ 20,0 $ 100,0 $ 75,0 $ 45,0 Price Unit

$ 540.000 $ 540.000 $ 945.000 2.025.000 Total Net Sales

-$ 11,0 -$ 35,0 -$ 45,0 -$ 23,4 Variable Cost

-$ 297.000 -$ 189.000 -$ 567.000 -1.053.000 Variable Cost

$ 9,0 $ 65,0 $ 30,0 $ 21,6 Unit Cont Margin

$ 243.000 $ 351.000 $ 378.000 $ 972.000 Contr Margin

45% 65% 40% 48% % Contribution

$ 0 $ 0 $ 0 -$ 456.500 Anual Fixed Costs

$ 9,0 $ 65,0 $ 30,0 $ 11,5 Unit Segment Margin

$ 243.000 $ 351.001 $ 378.000 $ 515.500 Segment Margin

• Compute the company's revised break-even point in dollar sales.

TOTAL BREAK EVEN POINT

21.134 Quantity

$ 45,0 Price Unit

$ 951.041 Total Net Sales

• Revised margin of safety in dollars and margin of safety percentage.

MARGEN OF SAFETY

$ 1.073.959 Sales 53%

Step-by-step explanation:

Hawaiian Fantasy Tahitian Joy TOTAL

27.000 5.400 32.400 Quantity

$ 20,0 $ 100,0 $ 33,3 Price Unit

$ 540.000 $ 540.000 $ 1.080.000 Total Net Sales

-$ 11,0 -$ 35,0 -$ 15,0 Variable Cost

-$ 297.000 -$ 189.000 -$ 486.000 Variable Cost

$ 9,0 $ 65,0 $ 18,3 Unit Cont Margin

$ 243.000 $ 351.000 $ 594.000 Contributing Margin

45% 65% 55% % Contribution

$ 0 $ 0 -$ 456.500 Anual Fixed Costs

$ 9,0 $ 65,0 $ 4,2 Unit Segment Margin

$ 243.000 $ 351.001 $ 137.501 Segment Margin

TOTAL BREAK EVEN POINT

24.900 Quantity

$ 33,3 Price Unit

$ 829.999 Total Net Sales

-$ 15,0 Variable Cost

-$ 373.500 Variable Cost

$ 18,3 Unit Cont Margin

$ 456.499 Contributing Margin

55% % Contribution

-$ 456.500 Anual Fixed Costs

$ 0,0 Unit Segment Margin

$ 0 Segment Margin

Hawaiian Fantasy Tahitian Joy Samoan Delight TOTAL

27.000 5.400 12.600 45.000 Quantity

$ 20,0 $ 100,0 $ 75,0 $ 45,0 Price Unit

$ 540.000 $ 540.000 $ 945.000 2.025.000 Total Net Sales

-$ 11,0 -$ 35,0 -$ 45,0 -$ 23,4 Variable Cost

-$ 297.000 -$ 189.000 -$ 567.000 -1.053.000 Variable Cost

$ 9,0 $ 65,0 $ 30,0 $ 21,6 Unit Cont Margin

$ 243.000 $ 351.000 $ 378.000 $ 972.000 Contr Margin

45% 65% 40% 48% % Contribution

$ 0 $ 0 $ 0 -$ 456.500 Anual Fixed Costs

$ 9,0 $ 65,0 $ 30,0 $ 11,5 Unit Segment Margin

$ 243.000 $ 351.001 $ 378.000 $ 515.500 Segment Margin

TOTAL BREAK EVEN POINT

21.134 Quantity

$ 45,0 Price Unit

$ 951.041 Total Net Sales

-$ 23,4 Variable Cost

-$ 494.541 Variable Cost

$ 21,6 Unit Cont Margin

$ 456.500 Contributing Margin

48% % Contribution

-$ 456.500 Anual Fixed Costs

$ 0,0 Unit Segment Margin

$ 0 Segment Margin