Break-Even Analysis

23- A

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:

                                                                     Hawaiian                     Tahitian

Fantasy                            Joy

 

Selling price per unit………………………….$15                            $100

Variable expenses per unit…………………   ..$9                                $20

Number of unit sold annually ……………….20,000                          5,000

 

 

 

 

 

 

 

 

 

 

 

Fixed expense total $475,800 per year. The Republic of Palau uses the U.S. dollar as its currency.

 

Required

  1. Assuming the sales mix given above, do the following:
    1. Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole.
    2. Compute the break-even point in dollar for the company as whole and the margin of safety in both dollars and percent.

 

  1. 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 company’s fixed expenses would not change.
    1. Prepare another contributions format income statement, including sales of the Samoan Delight (sales of the other two products would not change).
    2. Compute the company’s new break-even point in dollar and the new margin of safety in both dollars and percent.

 

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