Question

Multiple-Product Break-even, Break-Even Sales Revenue

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:

	DVDs	Equipment Sets
Price	$8	$25
Variable cost per unit	4	15

Total fixed cost is $74,460.

Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $18 and a variable cost per unit of $12. Total fixed cost must be increased by $24,820 (making total fixed cost $99,280). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Part 1: Sales Mix Instructions and Part 2: Break-Even

1. What is the sales mix of DVDs, equipment sets, and yoga mats?
3:1:2

2. Compute the break-even quantity of each product.

Break-even DVDs	units
Break-even equipment sets	units
Break-even yoga mats	units

Part 3a: Income Statement

3a. Prepare an income statement for Cherry Blossom Products for the coming year.

Cherry Blossom Products Inc.
Income Statement
For the Coming Year
	$
	$
	$

Feedback

3a. Prepare contribution margin income statement.

Part 3b: Contribution Margin Ratio and Part 4: Margin of Safety

3b. What is the overall contribution margin ratio? Use the contribution margin ratio to compute overall break-even sales revenue. (Note: Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)

Overall contribution margin ratio		%
Overall break-even sales revenue	$

4. Compute the margin of safety for the coming year in sales dollars.
$

Answer 1