Question

Kidd Company produces two products. Budgeted annual income statements for the two products are provided here:

	Power										Lite										Total
	Budgeted	Per					Budgeted				Budgeted	Per					Budgeted				Budgeted	Budgeted
	Number	Unit					Amount				Number	Unit					Amount				Number	Amount
Sales	200	@	$	500		=	$	100,000			800	@	$	560		=	$	448,000			1,000	$	548,000
Variable cost	200	@		290		=		(58,000	)		800	@		380		=		(304,000	)		1,000		(362,000	)
Contribution margin	200	@		210		=		42,000			800	@		180		=		144,000			1,000		186,000
Fixed cost								(12,000	)									(99,600	)				(111,600	)
Net income							$	30,000									$	44,400				$	74,400

Required:

e.      Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.

f.      Determine the margin of safety based on the combined sales of the two products.

Required E

PLEASE PROVIDE STEP BY STEP AND WHAT YOU DID TO GET EACH ANSWER OR RESPONSE

Verify the break-even point by preparing an income statement for each product as well as an income statement for the combined products.   

	Power	Lite	Total
Sales
Variable costs
Contribution margin
Fixed cost
Net income (Loss)

Required F

Determine the margin of safety based on the combined sales of the two products. (Round your answer to 1 decimal place.(i.e., .234 should be entered as 23.4))

What is the Margin of safety =         ?      %

Answer 1

E.

Contribution margin percentage = Contribution margin / Sales

	POWER	LITE	TOTAL
Contribution margin	42,000	144,000	186,000
Sales	100,000	448,000	548,000
Contribution margin percentage	0.42	0.32	0.34

Breakeven point = Fixed costs / Contribution margin percentage

	Power	Lite	Total
Fixed costs	12,000	99,600	111,600
Contribution margin percentage	0.42	0.32	0.34
Breakeven point	28,571	311,250	328,235

VERIFICATION

At Breakeven point total revenues equals total costs.

Variable cost percenatge = Variable costs / sales

	Power	Lite	Total
Variable cost	58,000	304,000	362,000
Sales	100,000	448,000	548,000
Variable cost percentage	0.58	0.68	0.66

	Power	Lite	Total
Sales	28,571	311,250	328,235
Variable costs (sales * variable cost percentage)	16,571 (28,571*0.58)	211,650 (311,250*0.68)	216,635 (328,235*0.66)
Contribution margin	12,000	99,600	111,600
Fixed cost	12,000	99,600	111,600
Net Income(loss)	0	0	0

F.

Margin of safety based on the combined sales of the two products = Sales - Breakeven sales

= 548,000 - 328,235

= 219,765